Renewable Energy 118 (2018) 437e451

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Renewable Energy
journal homepage: www.elsevier.com/locate/renene

The nexus between greenhouse gas emission, electricity production,

renewable energy and agriculture in Pakistan
Muhammad Tariq Iqbal Khan a, Qamar Ali b, *, Muhammad Ashfaq c
a
Department of Economics, Government Postgraduate College, Jaranwala, Faisalabad, 37200, Pakistan
b
Department of Economics, Virtual University of Pakistan, Faisalabad, 38000, Pakistan
c
Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad, 38040, Pakistan

a r t i c l e i n f o a b s t r a c t

Article history: The present study explores the nexus between agriculture value added, coal electricity, hydroelectricity,
Received 9 May 2017 renewable energy, forest area, vegetable area and greenhouse gas (GHG) emission in Pakistan using
Received in revised form annual data from 1981 to 2015. The Toda and Yamamoto approach explored that all the explanatory
22 October 2017
variables showed causality towards GHGs emission, agriculture value added, coal electricity, hydro-
Accepted 15 November 2017
Available online 15 November 2017
electricity, renewable energy and forest area. The unidirectional causality was observed from hydro-
electricity to GHGs emission, renewable energy to GHG emission, forest area to GHG emission, forest area
to coal electricity, hydroelectricity to forest area, and vegetable area to forest area. The bi-directional
Keywords:
Agriculture value added
causality was observed between agriculture value added and forest area. The VECM results confirmed
Electricity the long run causality of GHG emission, agriculture value added, and forest area. The annual convergence
Forest area from short to long-run equilibrium was 36.8%. The Fully Modified Ordinary Least Square (FMOLS) and
Renewable energy Canonical Cointegration Regression (CCR) showed the reduction in GHG emission due to increase in
Vegetables agriculture value added (0.124%), renewable energy (1.086%), vegetable area (0.153%) and forest area
Toda and Yamamoto (0.240%). The government should increase the agriculture value added, renewable energy, vegetable and
forest area because all these variables could off-set the GHG emission increase due to coal electricity and
hydroelectricity.
© 2017 Elsevier Ltd. All rights reserved.

1. Introduction Environment, economy, and energy (EEEs) are three important

The adverse climate changes are considered as a major problem
in the recent era due to the imbalance in the carbon cycle. The
atmospheric carbon emission due to human activities is more than
the capacity of the earth to absorb the carbon in oceans, forests, and
living and dead biomass. There are two basic solutions to balance
the world's carbon cycle which is a decrease in the carbon emission
and increase the capacity of carbon absorption or both [1]. The
environmental deterioration is responsible for the loss in infra-
structure, natural resources, agricultural productivity and human
life [2]. The United Nations Framework Convention on Climate
Change (UNFCCC) was started in 1992 in order to control the GHG
emission [3] and industrialized countries were forced to control the
GHG emission under Kyoto Protocol agreement (1997) [4].
* Corresponding author.
E-mail addresses: tariqiqbal88@yahoo.com (M.T.I. Khan), qamarali2402@gmail.
com (Q. Ali), ashfaq9@hotmail.com (M. Ashfaq).
ingredients for the development in the world [5]. The role of energy
is essential for human, economic, and social improvements which
are required for the sustainable development [6]. The increase in
energy consumption will be 56% from 2010 to 2040 [5]. The in-
crease in energy consumption is responsible for the increase in
carbon dioxide (CO2) emission, the main component of total GHG
emission. About 61.4% of GHG comes from the energy sector [7].
Due to excessive use of fossil energy, the share of agriculture sector
was 14e30% in the total GHG emission in the world. However, the
food and agriculture organization (FAO) admitted the potential of
the agricultural sector for the reduction in GHG or removal of
80e88% of the CO2 [8].
Especially, forests are termed as carbon stocks because a forest
has the ability to accumulate atmospheric carbon after converting
CO2 into carbon and oxygen. This accumulated carbon is stored in
tree trunks, branches, leaves, soils and dead biomass. Approxi-
mately, 1 ton of carbon is stored in the dry biomass of a tree which
is about 2 tons. It implies that about 430 ton of carbon per hectare is
stored in a tropical wet forest [1].

https://doi.org/10.1016/j.renene.2017.11.043
0960-1481/© 2017 Elsevier Ltd. All rights reserved.
438 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451
The contribution of coal-fired power plants was 41% of total
electricity generation in the world [9]. The share of coal was 5.4% in
total primary energy use and less than 1% in power sector during
2014 in Pakistan [10]. However, the deaths due to coal-fired power
plants were between 10,000 and 30,000 per year in the USA
because coal-fired power plants were responsible for nitrogen ox-
ides (NOx), sulfur dioxide (SO2), and particulate matter (PM) in the
environment [9]. Due to serious health issues and concern about
energy security, the importance of alternative energy resources is
increasing in the world [6]. Renewable energy is considered as
clean energy and it is derived from solar, wind, geothermal and bio-
fuel hydropower. It is not only beneficial for the environment but it
also improves the level of employment, output, and income by the
provision of 3.5 million jobs [6,11].
The largest source of renewable electricity is hydropower but its
contribution to the environment and climate change was not yet
fully explored. The hydropower reservoirs are considered as a
source of biogenic GHGs and the emission rate of hydropower
plants was sometimes higher than the emission rate of thermal
power plants [12]. The fastest growth rate was observed for non-
hydro sources of renewable energy like solar, wind, geothermal,
bio-energy, tidal and wave in power generation. The contribution of
these non-hydro sources in total power production will increase
from 2.5% in 2007 to 8.6% in 2030 [13]. The renewable energy in-
creases due to increase in economic growth and agricultural pro-
duction [14]. The renewable energy has a potential of 50% decrease
in the CO2 emission by 2050 if the increase in temperature of the
world will be limited to 2e2.4
C in the long run [13].
The utilization of renewable energy resources is also beneficial
for the farmers with respect to social, economic and environmental
advantages [14,15]. Jebli and Youssef [15] mentioned the use of
renewable energy in different agricultural activities like (a) the use
of solar energy heating and cooling of the greenhouse, product
drying, lighting, and irrigation; (b) the use of modern biofuels such
as bioethanol and biogas in agricultural activities. The agricultural
residues like wheat straw, hazelnut shells and grain dust are
termed as the biomass energy sources; (c) the geothermal energy
can be used in barns, aquaculture, greenhouse, soil improvement,
drying of agricultural products, and heating soil in the open fields;
(d) wind turbines are useful for irrigation, watering livestock, land
drainage and electricity generation; (e) the use of hydropower
supports the water services in agriculture like irrigation, drinking
water supplies, equitable water sharing and flood control.
1.1. The agriculture, renewable energy, electricity and GHG emission
in Pakistan
The environmental degradation was responsible for natural di-
sasters in Pakistan with an expectation to increase in the frequency
of natural calamity in the future [16]. The socioeconomic structure
of the country is affected due to extreme climatic changes. The
major environment-related issues are water pollution, solid waste
management, soil erosion, desertification, salinity and water-
logging, and deforestation [17]. Energy deficiency is another issue
for Pakistan due to the increasing energy demand. Nearly 54% of
total energy demand is fulfilled by using conventional energy
sources [18]. The enormous growth in the economy of Pakistan and
the potential for future growth highlighted the increasing energy
demand. But the growth in the economy was associated with
environmental degradation [16].
Pakistan has the highest deforestation in Asia, which is 2.1% per
annum. The reasons behind the deforestation were the urbaniza-
tion, global warming, high population rate, farming method,
overgrazing, the need for agriculture land and the use of wood as
primary energy source in the rural area. The increasing deforesta-
tion is responsible for the rise in temperature in the northern area,
which is a reason behind quick melting of glaciers, and the outcome
is a flood in the summer season [16]. The floods in 2010, 2011, 2013
and 2015 adversely affect the agriculture and infrastructure [17].
The forest cover should be 6% of the total land area in order to
achieve the World Bank's Millennium Development Goals about
the environment. But the forest cover is only 2.5% of the total land
area in Pakistan [16].
The government is taking some adaptation strategies (Fig. 1) to
mitigate the adverse climatic change effects [17].
A fine literature is available about the nexus between energy,
economy and the environment. It is also important to include the
agricultural sector in this nexus. There is a research gap about the
causality of electricity production, renewable energy, agriculture
value added, forest area, vegetable area and GHG emission, espe-
cially in Pakistan. The research studies are required to identify the
factors for the improvement of environmental quality. The present
research explores the relationship between electricity, renewable
energy, forest area, agriculture value addition, vegetable produc-
tion and GHG emission in Pakistan. This study uses the total GHG
emission as a proxy for environmental degradation instead of CO2
only. This study also reveals the short and long-run elasticity of
GHG with respect to selected variables. The results offer new in-
sights for the government, international agencies and research or-
ganization about the nexus between energy, agriculture, and
environment.
2. Literature review
Table 1 showed that the energy consumption causes pollution,
and causality was bi-directional between energy use and environ-
mental pollutants [19]. The causality from electricity production to
CO2 emission was observed in India [20]. Akhmat et al. [21]
mentioned the increase in GHG due to electricity generation from
oil, gas, and coal sources in 35 developing countries. The relation-
ship was positive between hydroelectricity and CO2 emission in
Malaysia [22], between CO2 emission and renewable energy in 19
developing and developed countries [13] but the reduction in CO2
due to rise in renewable energy was observed in Tunisia [15] and
Morocco [14]. The decrease in CO2 was also observed due to
combustible renewables and waste [23], and agriculture value
added [8,14,23]. The causality running from economic growth to
deforestation, and consumption of energy to deforestation was
observed in Pakistan [16]. The causality was bi-directional between
agriculture value added and CO2 emission in Tunisia [15] and 5
North African countries [8], and from agriculture value added to
CO2 emission in Brazil [23]. The causality was unidirectional from
CO2 emission to renewable energy in Tunisia [15] and from
renewable energy to CO2 in 5 North African countries [15]. The
causality was bi-directional among agriculture value added and
renewable energy [8,14].
3. Data, variables, descriptive and graphical analysis
The present study used annual data from 1981 to 2015 in the
case of Pakistan, taken from different sources (Table 2). The present
study was designed to establish the causality between agriculture
value added (AVA), electricity production from coal sources (COL),
electricity production from hydroelectric sources (HYD), renewable
energy supply (REN), forest area (FOR), vegetable area (VEG) and
greenhouse gas emission (GHG). Table 2 reveals the descriptive
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 439

Water conservation strategies

Water
Water management
Resources
Capacity building

Technology
Agriculture
Resource management
and Livestock
Genetic modification

Monitoring and forecasting of outbreak

Human Plans and policies

Health Training and capacity building

Resource management

Forest management
Forestry &
Habitat conservation
Biodiversity
Community participation

Forecasting and warning system

Disaster Preparedness

Preparedness Management

Recovery and rehabilitation

Fig. 1. Adaptation strategies by the government [17].

analysis and normality of selected variables while the graphical
trend in each variable was revealed by Figs. 2e8. The average
agriculture value addition was 1507.80 constant 2010 USD per
worker and it shows increasing trend from 1981 to 2015. The mean
value of coal electricity production was 0.22% which was more in
1995 and less in 2015. On average, electricity production from hy-
droelectric was 38.97% with a maximum in 1984 and minimum in
2000. The trend of renewable energy supply was decreasing from
1981 but it shows increasing trend after 2007 (Fig. 5) while the
mean of renewable energy supply was 43.81%. The role of forest
area is important for the environment. But, Fig. 6 shows a contin-
uous decrease in forest area since 1981 which is an alarming situ-
ation with respect to environmental preservation. The vegetable
production is important with respect to food security. The average
vegetable area was 63074.62 ha with a maximum (75,064.00 ha) in
2001 and minimum (27,246.00 ha) in 1982. The GHG emission was
dependent variables in the econometric analysis and its average
was 1.79 metric ton of CO2 equivalent per capita. The GHG emission
was maximum (2.11 metric ton of CO2 equivalent per capita) in
2007 and minimum (1.52 metric ton of CO2 equivalent per capita)
in 1987. Fig. 8 shows the increase in GHG from 1981 to 2015 which
was not good for the environment. Before the empirical analysis, it
is essential to explore the normality in variable series by using
different indicators (skewness, kurtosis and Jarque-Bera statistics).
The value of Jarque-Bera probability was greater than 5% in each
case which confirmed the normality in each variable series.
After the confirmation of normality (Table 2), it is important to
estimate the pairwise correlation coefficients. A positive coefficient
depicts the movement of variables in the same direction while the
direction is opposite for negative coefficient of correlation. Table 3
reveals that the multicollinearity was not a problem for selected
variables.
4. Econometric methodology
The empirical analysis was undergone from four econometric
steps. First step deal with the detection of a unit root in each var-
iable series. The second step explored the long-run co-integration
between the selected variables. The third step revealed the esti-
mation of Granger causality among selected variables. The last
steps deal with the calculation of short and long-run elasticity of
GHG emission. The software(s) Microsoft Excel, Eviews 8, and
STATA 12 were employed for the empirical analysis.
440 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451

Table 1
An overview of selected literature.

Author(s) Variables Method Countries Time Period Causality Results

Apergis et al. CO2, renewable energy, VECM 19 developing and 1984e2007 1) Nuclear energy decreases CO2
[13] economic growth and developed countries 2) Renewable energy increases CO2
nuclear energy 3) Nuclear energy / CO2
Ahmed et al. Deforestation, trade ARDL, VECM Pakistan 1980e2013 1) The decreasing negative effect of growth in the economy
[16] openness, energy on deforestation.
consumption, growth 2) Growth in the economy / deforestation
in the economy, and 3) Consumption of energy / deforestation
population 4) Growth in the economy 4 consumption of energy
5) Trade openness / deforestation
Akhmat et al. energy consumption Engle and Granger Pakistan, Bangladesh, 1975e2011 1) Energy consumption increases pollutants
[19] and environmental Causality test Nepal, India, Sri Lanka 2) Energy consumption / environmental pollutants
pollutants 3) Energy consumption4 CO2 (Nepal)
4) CO2 exerts changes in electric power consumption
(Bangladesh and Nepal)
Akhmat et al. GHG emissions, FMOLS, DOLS 35 developing 1975e2012 1) Nuclear energy decreases GHGs
[21] agricultural CH4 countries 2) Electricity from oil, gas, and coal increases GHGs
emissions, industrial
N2O emission and
energy sources (coal,
gas, oil energy; fossil
fuel; nuclear)
Cowan et al. CO2, growth in the Panel bootstrap BRICS 1990e2010 1) GDP 4 CO2 (Russia)
[20] economy and causality approach 2) GDP / CO2 (South Africa)
consumption of 3) CO2 / GDP (Brazil)
electricity 4) Electricity consumption / CO2 (India)
Jebli and CO2, trade openness, VECM Tunisia 1980e2011 1) Agriculture value added 4 CO2
Youssef [15] GDP, renewable energy, 2) Agriculture value added 4 trade openness
nonrenewable energy, 3) Renewable energy / GDP
and agriculture value 4) CO2 / renewable energy
added 5) Agriculture value added, non-renewable energy, and
trade increases CO2
6) Renewable energy decreases CO2
Jebli and CO2, agricultural value VECM Brazil 1980e2011 1) Agriculture value added / CO2
Youssef [23] added, GDP, and 2) Agriculture value added / GDP
combustible 3) Combustible renewables and waste, and agriculture
renewables and waste value added increases growth in the economy
4) Agriculture value added and combustible renewables
and waste decreases CO2
Lau et al. [22] CO2, hydroelectricity VECM Malaysia 1965e2010 1) hydroelectricity consumption / CO2
consumption and 2) GDP / CO2
economic growth
Asumadu- CO2, biomass-burned VECM Ghana 1961e2012 1) Rice production increases CO2
Sarkodie and crop residues, 2) Cereal production increases CO2
Owusu [24] agriculture value 3) Agricultural machinery decreases CO2
added, agricultural 4) Cereal production 4 CO2
machinery, cereal 5) Biomass-burned crop residues 4 CO2
production, livestock,
and rice area
Jebli and CO2, renewable energy, VECM 5 North African 1980e2011 1) Agriculture value added 4 CO2
Youssef [8] agriculture value countries 2) Agriculture value added / GDP
added, GDP 3) GDP / renewable energy
4) Agriculture value added / renewable energy
5) Renewable energy / agriculture value added
6) Renewable energy / CO2
7) Increase in GDP and renewable energy increases CO2
8) Increase in agricultural value added decreases CO2
Jebli and CO2, renewable energy, VECM Morocco 1980e2013 1) Renewable energy increases due to increase in economic
Youssef [14] arable land, agriculture growth, arable land, and agricultural production.
value added and 2) Renewable energy decreases CO2
GDP 3) Agriculture value added 4 renewable energy
4) Arable land use / renewable energy
Khan et al. [25] GHG emission, VECM, FMOLS, GMM 34 upper middle 2001e2014 1) The decrease in GHG emission was observed due to
Financial development, income countries increase in renewable energy in Europe.
energy use, renewable
energy, trade and
urbanization

4.1. Model specification

GHGt ¼ A0 AVAat 1 COLat 2 HYDat 3 RENta4 FORat 5 VEGat 6 εεit (1)
The econometric model for the empirical analysis was used for
selected variables (Table 2) in accordance with [29]: Eq. (1) was converted into double-log form by applying natural
logarithm on both sides because the probability of
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 441

Table 2
Descriptive statistics of variables (1981e2015).

Variables Measuring Unit Descriptive Analysis Normality Analysis (natural log-form) Data Source

Mean Max. Min. SD Skewness Kurtosis Jarque-Bera Probability

VAL Constant 2010 USD 1507.80 1764.13 1011.20 237.50 0.86 2.33 4.98 0.08 [26]
COL % of total 0.22 0.77 0.01 0.22 0.31 3.37 0.76 0.69 [26]
HYD % of total 38.97 58.64 25.24 10.26 0.39 1.78 3.05 0.22 [26]
REN % of primary energy supply 43.81 57.28 35.97 6.33 0.60 2.05 3.40 0.18 [27]
FOR % of land area 2.85 3.77 1.91 0.56 0.26 1.90 2.17 0.34 [26]
VEG Ha 63074.62 75064.00 27246.00 13090.54 0.05 1.60 2.87 0.24 [28]
GHG Metric ton of CO2 equiv. 1.79 2.11 1.52 0.21 0.16 1.55 3.20 0.20 [26]

1,800

1,700

1,600
Constant 2010 USD

1,500

1,400

1,300

1,200

1,100

1,000
1985 1990 1995 2000 2005 2010 2015
VAL
Fig. 2. Trend of agriculture value added per worker (1981e2015).

heteroskedasticity was low in natural logarithmic form, as: 5. Econometric results and discussion

5.1. Unit root analysis

lnðGHGt Þ ¼ a0 þ a1 lnðAVAt Þ þ a2 lnðCOLt Þ þ a3 lnðHYDt Þ
þ a4 lnðRENt Þ þ a5 lnðFORt Þ þ a6 lnðVEGt Þ þ εit
where,
a0 ¼ lnðA0 Þ
the subscript t represents the time period, GHG presents the
greenhouse gas emission in metric ton of CO2 equivalent per capita,
AVA represents the agriculture value added per worker in constant
2010 USD, COL represents the percentage of electricity from coal
sources, HYD represents the percentage of electricity from hydro-
electric sources, REN represents the percentage of renewable en-
ergy supply, FOR represents the forest area as a percentage of total
land area, VEG is the area under vegetable production in hectares.
Here a1, a2, a3, a4, a5 and a6 show the elasticity of GHG emission
with respect to AVA, COL, HYD, REN, FOR and VEG, respectively.
The unit root analysis is the first step in panel data analysis
(2)
because the result from regression analysis gives misleading
conclusion if the selected variables have stochastic trend [29,30].
The regression result was spurious if the stochastic trend was
observed in the dependent variable and minimum one explanatory
variable or these variables have no cointegration [29e31]. To avoid
this problem, the Augmented Dickey-Fuller (ADF) [32] and the
Phillips-Perron (PP) [33] unit root test were adopted for selected
variables. The econometric technique of these unit root tests is
expressed as [29]:
X
m
DXt ¼ a0 þ a1 t þ qXt1 þ ∅i DXti þ ut (3)
i¼1
where, Xt represents the variable series, D represents the first dif-
ference, and the lagged difference terms are included to correct for
serial correlations of the disturbance terms on the right side of the
442 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451

.8

.7

.6

.5
% of total

.4

.3

.2

.1

.0
1985 1990 1995 2000 2005 2010 2015
COL
Fig. 3. Trend of electricity production from coal sources (1981e2015).

equations. The Schwarz information criterion (SIC) was used for the
selection of lagged differences. When q ¼ 0, the Xt variable series
has a unit root and an I(1) process governed by a stochastic trend
[27]. If the selected time series variable showed integrated of order
one, the investigation of 2nd order unit root is performed by using
the equation expressed as [29]:
X
m
D2 Xt ¼ b0 þ lDXt1 þ gi D2 Xti þ εt
i¼1
where D2 represents the second-difference operator. The variable
series Xt have the integrated of order two or I(2) if l ¼ 0. Suppose
d shows the number of times that the variable series Xt requires to
be differenced to become stationary than the variable series Xt has
integrated of order d or I(d). The tabulated values [34] were used
because the usual asymptotic distribution was not observed in
estimated q [29].
Table 4 demonstrates the results of these unit root tests. Both
unit root tests were performed at three different forms such as
level, first difference, and the second difference. Moreover, case 1
reveals the application of unit root tests with intercept while case 2
includes both intercept and trend. Only lnVEG shows the absence of
unit root or presence of stationarity at the level form and had
integration of order I(0). Therefore, the unit root analysis was
performed at first difference form for other variables. All the vari-
ables excluding lnFOR showed the presence of stationarity at first
difference form. It shows that lnVAL, lnCOL, lnHYD, lnREN and
lnGHG had integrated of order I(1). The variable lnFOR become
stationary at second difference form or integrated of order I(2).
When the selected variables showed stationarity at I(0), I(1) and
I(2), then Toda and Yamamoto approach was used for Granger
causality analysis.
5.2. VAR lag length selection
The determination of lag length is required before the applica-
tion of cointegration and causality tests. The results become biased
(4) due to the selection of inappropriate lag length. The VAR lag length
selection test was applied which give five different selection cri-
terions such as LR (sequential modified LR test statistic), FPE (final
prediction error), AIC (Akaike information criterion), SC (Schwarz
information criterion), and HQ (Hannan-Quinn information crite-
rion). The AIC gives dynamic results and has exceptional features as
compared to Schwartz Bayesian criteria (SBC). Therefore, the AIC
was employed for appropriate lag length selection. Table 5 shows
the appropriate lag length is 2 on the basis of LR, FPE, AIC, and HQ.
5.3. Johansen cointegration test
Johansen test of cointegration involves the estimation of vector
autoregressive (VAR) models including the levels as well as the
difference of the nonstationary variables. The following equation is
used for Johansen cointegration test [35]:
DXt ¼ t1 DXt1 þ …… þ tk1 DXtkþ1 þ pXtk þ ε (5)
where, ε represents the Gaussian random variable, t1 and p shows
the matrices of OLS estimated parameter, pXt-k explores various
linear combinations of levels of the variable Xt and the matrix p
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 443

60
56
52
48
% of total

44
40
36
32
28
24
1985 1990 1995 2000 2005 2010 2015
HYD
Fig. 4. Trend of electricity production from hydroelectric sources (1981e2015).

have the information about the long run properties. When the causality among the selected variables but it does not describe the
matrix (p) rank is equal to 0, then no variable series can be direction this causal association. The following tests were used to
expressed as the linear combination of the remaining variables. explore the causality among the selected variables.
However, the long-run cointegration among the variables is
confirmed when the rank of the coefficient matrix (p) is equal or
5.4.1. The TodaeYamamoto approach to granger causality
more than 1. Johansen [36] and Engle and Granger [37] mentioned
Toda and Yamamoto [38] procedure is used in level VARs,
two statistics for the determination of the rank of the coefficient
whether the selected variables are integrated, cointegrated, or not.
matrix or the number of cointegration relationships among the
This test explored the invalidity of conventional Granger causality
selected variables. First statistics, the likelihood ratio test is used in
F-statistic because it does not have a standard distribution when
current research to explore the null hypothesis about the number of
the time series data is integrated or cointegrated [39]. This
cointegration relationships r versus the alternative rþ1. Here, H0
approach [38] is suitable when the selected variables show the
shows the zero number of co-integrating vectors [35]. The confir-
integrated of I(0), I(1) and I(2) like in the current research.
mation of long-run cointegration pointed out the presence of at
According to [38], cited in Ref. [40], the modified Wald test
least a unidirectional Granger causal association between the
(MWALD) test was applied to explore the causality among the
variables.
selected variables. The MWALD test is beneficial due to the avoid-
The presence of cointegration is not compulsory for the appli-
ance of problems related to ordinary Granger tests of causality by
cation of Toda and Yamamoto Granger causality analysis. However,
ignoring the chances nonstationarity or co-integration among the
the presence of cointegration is required to explore the long run
variables [41e43]. This causality test [38] uses a level VAR model for
elasticity coefficients by using FMOLS and CCR regressions. The
the selected variables, and thereby reduced the risks of misleading
Johansen cointegration test gives two indicators such as trace sta-
results due to incorrect identification of the order of integration for
tistics and max-eigenvalue statistics. The rejection of null hypoth-
the selected variables [44]. Wolde-Rufael [42] and Amiri and Ven-
esis is required as 5% significance level for the confirmation of long-
telou [40] reported the important idea of this method that the
run cointegration between the variables. Table 6 shows that both
artificial augmentation of the correct VAR order (k) by using the
trace and max-eigenvalue test indicate 4 and 3 cointegration(s)
maximum order of integration (dmax), then the VAR with the order
relationship, respectively between selected variables at 5% signifi-
(k þ dmax) is estimated by ignoring the coefficients of the last
cance level. The presence of long-run cointegration supports the
lagged dmax vector [40e43,45e47].
concept of Granger causality between the variables.
This test involves two steps. The first step deals with the
determination of the maximum order of integration (d) and
5.4. Granger causality optimal lag length (k) of the variables. The order of integration (d)
was determined by using the ADF and PP unit root tests while the
The test of co-integration only revealed the presence of Granger optimal lag length (k) was determined by using the level VAR
444 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451

60

56
% of total primary energy

52

48

44

40

36

32
1985 1990 1995 2000 2005 2010 2015
REN
Fig. 5. Trend of renewable energy supply (1981e2015).

procedure. The second step describes the result of VAR (k) causality
test by using MWALD procedure [39]. For bivariate (Y, X) associa- H0 : f1i ¼ 0; i ¼ 1; …:; k (9)
tion, the Toda and Yamamoto (1995) causality test is expressed as A Wald test is used to test the hypothesis and the computed
[39,48]: Wald-statistic has an asymptotic chi-square distribution with k
degrees of freedom. Table 7 reveals the result of Toda and Yama-
X
k X
kþd max X
k
moto approach to identify the causality among the selected vari-
Yt ¼ a0 þ b1i :Yti þ b2i :Yti þ c1i :Xti
ables. This test was applied seven times by taking each variable as
i¼1 i¼kþ1 i¼1
dependent variable one by one. The result shows that GHG emis-
X
kþdmax
sion per capita, agriculture value added, electricity production from
þ c2i :Xti þ e1t (6)
coal, hydroelectric electricity production, renewable energy supply,
i¼kþ1
and forest area were affected by all other variables in Pakistan. This
test also explored the unidirectional causality running from hy-
X
k X
kþdmax X
k
droelectric electricity production to GHG emission, renewable en-
Xt ¼ d0 þ e1i :Xti þ e2i :Xti þ f1i :Yti
ergy supply to GHG emission, forest area to GHG emission,
i¼1 i¼kþ1 i¼1
hydroelectricity to coal electricity, forest area to coal electricity,
X
kþdmax
hydroelectricity to the forest area, and vegetable area to forest area.
þ f2i :Yti þ e1t (7)
The uni-directional causality was also running from renewable
i¼kþ1
energy to agriculture value added and CO2 in 5 North African
where, Yt represents the dependent variable while Xt represents countries [8]. The two-way causality association was detected be-
the independent variables, e1t and e1t are the residuals of the tween agriculture value added and forest area. The Toda and
models. The standard c2 statistics is used for the application of Yamamoto do not distinguish between short and long-run causal-
Wald tests to the first k coefficients matrices [49]. Suppose ity. For policy analysis, the present study also used VECM model to
c1 ¼ vecðc11 ; c12 ; ………:; c1k Þ represents the vector of the first k detect the long run causality between the variables. The VECM
VAR coefficients. The null hypothesis that X does not cause Y is approach can be applied in the presence of cointegration among
expressed as [39]: the variables but the suitable approach was Toda and Yamamoto
due to the integration of order I(2) for one variable.
H0 : c1i ¼ 0; i ¼ 1; …:; k (8)
Similarly, the second null hypothesis that Y does not cause X is 5.4.2. Vector error correction model (VECM)
expressed [39]: The Toda and Yamamoto [38] causality approach was used due
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 445

4.0

3.6

3.2
% of land area

2.8

2.4

2.0

1.6
1985 1990 1995 2000 2005 2010 2015
FOR
Fig. 6. Trend of forest area (1981e2015).

to the presence of I(2) for one variable. However, Hossain [50] used
Engel and Granger [37] causality test in first difference instead of
Vector Autoregressive (VAR) because it shows misleading results in
the presence of co-integration. Therefore, the inclusion of one
additional variable to the VAR system like error correction term
(ECM) was used to explore the long run causality. The augmented
Granger causality test was employed after the addition of ECM in a
multivariate pth order VECM model for selected variables
expressed as [50]:
Table 8 describes the result of VECM, only for the detection of
long-run causality among the selected variables. A negative and
significant coefficient of ECM showed that the variable has a long
run causal association with all other variables. The GHG emission
has long run causality with all other variables which shows the all
the selected variables cause GHG emission in the long-run. Simi-
larly, the long run causality was also observed for agriculture value
added and forest area in Pakistan. It implies that long-run causality
was bi-directional between GHG emission and forest area; GHG

2 2 3 3 2 32 2 3 3 2 3
DlnGHGt C1 b11k b12k b13k b14k b15k b16k b17k DlnGHGt l1 ε1it
6 DlnAVAt 7 6 C2 7 6 b21k b22k b23k b24k b25k b26k b27k 76 DlnAVAtk 7 6 l2 7 6 ε2it 7
6 7 6 7 6 76 7 6 7 6 7
6 DlnCOLt 7 6 C3 7 Xp 6 b31k b32k b33k b34k b35k b36k b37k 76 DlnCOL 7 6 l3 7 6 ε3it 7
6 7 6 76 tk 7
6 DlnHYDt 7 ¼ 6 7
þ 6 b 76 DlnHYD 7 þ6 7 6
6 l4 7ECMit1 þ 6
7
6 7 6 C4 7 6 41k b42k b43k b44k b45k b46k b47k 76 tk 7 ε4it 7 (10)
6 DlnRENt 7 6 7
k1 6 76 DlnREN 7 6 7 6
ε5it
7
6 7 6 C5 7 6 b51k b52k b53k b54k b55k b56k b57k 76 tk 7 6 l 7
4 l5 5
6 7
4 DlnFORt 5 4 C 5 4 b b62k b63k b64k b65k b66k b67k 54 DlnFORtk 5 6
4 ε6it 5
6 61k
DlnVEGt C7 b71k b72k b73k b74k b75k b76k b77k DlnVEGtk l7 ε7it

where, i ¼ 1, 2, …, n; t ¼ pþ1, pþ2, …, T. Ci ; bi and li were estimated
parameters. D showed the first difference, εit are serially indepen-
dent error terms with zero mean and finite covariance matrix, and
ECMit1 was the one period lagged error term and derived from co-
integration vector. F-test showed the direction of causality among
the variables. The ECM coefficient showed how fast deviations from
the long-run equilibrium were eliminated. The significance of ECM
provides another way for causal analysis which is called as long-run
causality test.
emission and agriculture value added, and agriculture value added
and forest area. The bi-directional causality between agriculture
value added and renewable energy was found in Morocco [14]. The
bi-directional causality between agriculture value added and CO2
was in line with [8].
5.5. Short-run elasticity
The short-run elasticity of GHG with respect to selected
446 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451

80,000

70,000

60,000

50,000
ha

40,000

30,000

20,000
1985 1990 1995 2000 2005 2010 2015
VEG
Fig. 7. Trend of vegetable area (1981e2015).

variables was estimated by using the error correction model [28] significant (0.105%) increase in GHG emission due to 1% increase in
after variable modification: hydroelectricity. In the short-run, the GHG emission reduction was
1.001% due to 1% increase in renewable energy supply. The reduc-
X
p X
p tion in GHG emission was 0.227% due to 1% increase in forest area in
lnGHGt ¼ j0 þ j1i lnGHGti þ j2i lnAVAti the short run which shows the benefit of forest even in the short-
i¼1 i¼0 run. The vegetable area was also found beneficial for the environ-
X
p X
p X
p ment and the significant GHG emission reduction was 0.189% due to
þ j3i lnCOLti þ j4i lnHYDti þ j5i lnRENti 1% increase in vegetable area in the short run. The ECM reveals the
i¼0 i¼0 i¼0 percentage annual convergence from short-run to long-run equi-
Xp Xp
librium. The negative and significant ECM shows the 36.8% annual
þ j6i lnFORti þ j7i lnVEGti þ lECMt1 þ ut convergence from short to long-run equilibrium. It concludes that
i¼0 i¼0
the increase in GHG emission due to hydroelectricity could be easily
(11) offset by increasing forest area, renewable energy supply and the
vegetable area in the short run.
where, ECMt1 represents the error correction term which was
obtained by using the following cointegration equation:

X
p X
p
5.6. Long run elasticity
ECMt ¼ lnGHGt  d0  d1i GHGti  d2i AVAti
i¼1 i¼0
The long-run elasticity coefficient of GHG with respect to
X
p X
p X
p
selected variables was estimated by using two cointegration
 d3i HYDti  d4i RENti  d5i FORti
i¼0 i¼0 i¼0
regressions:
Xp
 d6i VEGti (12)
i¼0
5.6.1. Fully modified ordinary least square (FMOLS)
where the parameter l shows the adjustment speed from short to The FMOLS controlled the problems of serial correlation and
long-run equilibrium, and j1 ; j2 ; j3 ; j4 ; j5 ; j6 represents the pa- endogeneity and used for the estimation of long-run elasticity co-
rameters to be estimated. efficients. The FMOLS is based on non-parametric approach and
Table 9 reveals the results of short-run elasticity of GHG emis- provides consistent parameters when the sample size is small. The
sion with respect to selected variables. The result shows a FMOLS estimator can be constructed as expressed below [51, 52]:
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 447

2.2
metric ton of CO2 equivalent

2.1

2.0

1.9

1.8

1.7

1.6

1.5
1985 1990 1995 2000 2005 2010 2015
GHG
Fig. 8. Trend of greenhouse gas emission per capita (1981e2015).

Table 3 Table 5
Correlation matrix of selected variables. Lag length selection.

Variables lnVAL lnCOL lnHYD lnREN lnFOR lnVEG VAR lag order selection criteria

lnVAL 1.000 Lag LogL LR FPE AIC SC HQ

lnCOL 0.252 1.000
0 270.015 NA 0.000 15.940 15.623 15.833
lnHYD 0.186 0.039 1.000
1 604.840 507.311 0.000 33.263 30.72349a 32.409
lnREN 0.332 0.005 0.572 1.000
2 671.038 72.21670a 4.92e-24a 34.30536a 29.544 32.70322a
lnFOR 0.272 0.172 0.174 0.390 1.000
lnVEG 0.154 0.423 0.144 0.273 0.301 1.000 a
Indicates lag order selected by the criterion (each test at 5% level).

Table 4
Unit root tests results for Pakistan.

Unit Root Tests Form Variables

lnVAL lnCOL lnHYD lnREN lnFOR lnVEG lnGHG

ADF Level 2.417 2.006 1.459 2.447 1.270 5.700* 0.497

Case 1: model with only intercept 1st difference 6.610* 9.933* 6.209* 5.401* 6.171 5.972* 5.669*
2nd difference 7.246* 7.271* 7.697* 7.572* 2.871*** 12.456* 7.454*
Phillips-Perron Level 3.929* 2.065 1.446 2.505 22.577 2.991** 0.494
Case 1: model with only intercept 1st difference 6.639* 8.941* 6.211* 5.414* 6.684 5.982* 5.669*
2nd difference 30.665* 18.786* 29.233* 21.608* 2.797*** 27.432* 19.209*
ADF Level 1.742 2.017 1.564 0.765 1.684 3.908** 2.635
Case 2: Model with intercept and trend 1st difference 7.296* 10.985* 6.222* 6.128* 0.353 3.702** 5.578*
2nd difference 7.105* 7.151* 7.586* 7.446* 5.619* 12.299* 7.406*
Phillips-Perron Level 1.549 1.999 1.541 0.702 12.264 1.742* 2.326
Case 2: Model with intercept and trend 1st difference 8.060* 10.027* 6.318* 6.298* 0.484 7.509* 5.579*
2nd difference 33.168* 18.298* 31.678* 20.715* 5.631* 49.149* 33.339*
*
significant at 1%.
**
significant at 5%.
***
significant 10%.
448 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451

Table 6 Table 8
Results of the Johansen co-integration test. Long run VECM Granger causality test for Pakistan.

H0 Eigenvalue Trace Max-Eigenvalue Variables ECM

Statistics p-values Statistics p-values Coefficient P-value

None a
0.987 323.521 0.000 139.190 0.000 DlnGHG 1.758** 0.014
At most 1a 0.886 184.331 0.000 69.478 0.000 DlnVAL 1.199* 0.001
At most 2a 0.829 114.853 0.000 56.552 0.000 DlnCOL 0.014 0.960
At most 3a 0.597 58.301 0.004 29.049 0.032 DlnHYD 0.246 0.740
At most 4a 0.406 29.253 0.058 16.668 0.188 DlnREN 0.552 0.471
At most 5 0.306 12.585 0.131 11.696 0.123 DlnFOR 0.006*** 0.092
At most 6 0.027 0.889 0.346 0.889 0.346 DlnVEG 0.104 0.504
a
Denotes rejection of the hypothesis at the 0.05 level. *significant at 1%, **significant at 5%, ***significant at 10%; Lag length: 2.

Table 9
 X
N  Short-run elasticity estimates of GHG emission in Pakistan.
b
b ¼N 1 b
b (13)
GFM FM;i
Variables Coefficient Standard Error t-statistics p-value
i¼1
 DlnVAL 0.050 0.064 0.778 0.444
where b b DlnCOL
FM;i is the traditional FMOLS estimator. The associated t-
0.005 0.004 1.361 0.185
statistic is given as: DlnHYD 0.105* 0.037 2.814 0.009
DlnREN 1.001* 0.155 6.464 0.000
DlnFOR 0.227*** 0.123 1.851 0.076
X
N
DlnVEG 0.189* 5.932
tb ¼ N1=2 tb (14) 0.032 0.000
b GFM b FM;i ECMt-1 0.368*** 0.201 1.829 0.079
i¼1
*significant at 1%, ***significant at 10%.

Table 10
5.6.2. Canonical Cointegration Regression (CCR) Long run elasticity estimates of GHG emission for Pakistan.
According to Han [53], The CCR procedure was initially used by
Variables Cointegration regression models
Park [54] which involves the transformation of data that used only
the stationary component of a cointegrating model. However, the FMOLS CCR

cointegrating relationship supported by the cointegrating model is Coef. Prob. Coef. Prob.
not changed due to data transformation. The CCR transformation DlnVAL 0.109** 0.011 0.124** 0.017
makes the error term of cointegrating model uncorrelated at the DlnCOL 0.006* 0.008 0.007** 0.014
zero frequency with regressors. Due to this, the CCR gives asymp- DlnHYD 0.147* 0.000 0.150* 0.000
totically efficient estimators and the asymptotic chi-square tests are DlnREN 1.079* 0.000 1.086* 0.000
DlnFOR 0.235* 0.000 0.240* 0.000
free from nuisance parameters. The detailed econometric proced- DlnVEG 0.153* 0.000 0.150* 0.000
ure of CCR is described by Han [53]. Diagnostic tests Test-statistics p-value
Table 10 demonstrates the long run elasticity coefficient of GHG LM test for Serial Correlation 0.168 0.920
emission with respect to selected variables in Pakistan. Results ARCH test 2.957 0.086
LM test for Heteroscedasticity 11.998 0.062
showed a significant 0.124% reduction in GHG emission due to 1%
Jarque-Bera Normality test 1.913 0.384
increase in agriculture value added. It implies that government Durbin-Watson stat 1.941
should enhance the agriculture value addition for the environ-
*significant at 1%, **significant at 5%.
mental protection. The reduction in CO2 due to agriculture value
added was also explored by Ref. [8]. The reduction in GHG emission
was also significant (1.086%) due to 1% increase in renewable en-
ergy supply which implies the increase in the future share of CO2 due to renewable energy was also mentioned by Jebli and
renewable energy for the GHG emission reduction. The decrease in Youssef [14]. The renewable energy has the ability to offset the

Table 7
Toda-Yamamoto granger causality test (Chi-Square) for Pakistan.

Independent Variables Dependent Variables

lnGHG lnVAL lnCOL lnHYD lnREN lnFOR lnVEG

lnGHG 0.747 (0.688) 1.562 (0.458) 1.469 (0.480) 2.869 (0.238) 0.728 (0.695) 2.134 (0.344)
lnVAL 3.733 (0.155) 0.805 (0.669) 0.048 (0.976) 2.430 (0.297) 6.222** (0.045) 3.567 (0.168)
lnCOL 4.021 (0.134) 3.320 (0.190) 1.143 (0.565) 3.833 (0.147) 3.169 (0.205) 3.122 (0.210)
lnHYD 14.433* (0.001) 2.222 (0.329) 7.928** (0.019) 2.952 (0.229) 6.715** (0.035) 0.071 (0.965)
lnREN 9.974* (0.007) 0.386 (0.825) 0.767 (0.682) 1.410 (0.494) 2.346 (0.310) 0.681 (0.711)
lnFOR 9.942* (0.007) 12.223* (0.002) 11.861* (0.003) 3.704 (0.157) 3.702 (0.157) 0.609 (0.738)
lnVEG 2.722 (0.256) 1.558 (0.459) 1.163 (0.559) 1.717 (0.424) 0.344 (0.344) 4.890*** (0.087)
All 36.617* (0.000) 26.308* (0.010) 45.810* (0.000) 20.854*** (0.053) 21.782** (0.040) 22.914** (0.029) 8.431 (0.751)
Causality HYD/GHG FOR/VAL HYD/COL ALL/HYD ALL/REN VAL/FOR No Causality
REN/GHG ALL/VAL FOR/COL HYD/FOR
FOR/GHG ALL/COL VEG/FOR
ALL/GHG ALL/FOR

*significant at 1%, **significant at 5%, ***significant at 10%, The values in parentheses are the p-values, Lag length: 2.
 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451 449

.06

.04

.02

.00

-.02

-.04

-.06
88 90 92 94 96 98 00 02 04 06 08 10 12 14

Recursive Residuals ± 2 S.E.

Fig. 9. Plot of recursive residual for long-run coefficients.

16

12

-4

-8

-12

-16
88 90 92 94 96 98 00 02 04 06 08 10 12 14

CUSUM 5% Significance

Fig. 10. Plot of CUSUM of residual for long-run coefficients.

significant increase in GHG emission due to 1% increase in elec-
tricity production from coal (0.006%) and hydroelectric sources
(0.147%). The GHG emission reduction was 0.227% and 0.189% due
to 1% increase in forest and vegetable area, respectively. The in-
crease in forest area is beneficial for the environmental preserva-
tion due to the existence of two-way causality with agriculture
value addition. The value addition is a new concept in agriculture
which may increase the income of farmers as well as employment
in the agro-based industry.
The exists different problem in the estimation of regression
equation such as serial or auto-correlation, heteroscedasticity, non-
normality and structural instability in the regression model.
Table 10 showed the result of different diagnostic tests to explore
these problems. The test statistic of LM serial correlation test was
insignificant at 5% level which shows the absence of serial corre-
lation. The LM test for heteroscedasticity and ARCH test showed
insignificant test-statistics at 5% level of significance. It implies that
the model is free from the heteroscedasticity. The normality in the
regression was confirmed by Jarque-Bera normality test because it
was insignificant at 5% significance level. The Durbin-Watson sta-
tistics confirmed the absence of auto-correlation because the value
of the Durbin-Watson statistics (1.941) was very close to the
optimal value of Durbin-Watson statistics (2.00).
At the end, the stability of the long-run parameters was checked
by using recursive residual, cumulative sum (CUSUM) and the cu-
mulative sum of squares (CUSUMSQ) tests. Figs. 9e11 describes the
450 M.T.I. Khan et al. / Renewable Energy 118 (2018) 437e451
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
88 90 92 94 96 98
CUSUM of Squares
Fig. 11. Plot of CUSUMSQ residual for long-run coefficients.
graphical presentation of these tests. The recursive residual and
CUSUM tests results were within the critical bounds at 5% level of
significance (Figs. 9 and 10). However, the result of CUSUMSQ is
also within bound limits for most of the time at 5% level of signif-
icance. However, it should be within bound limit at 10% level of
significance. Therefore the proposed GHG emissions model can be
used for the purpose of policymaking.
6. Conclusions and policy recommendations
The environmental degradation is an international issue, also
observed in Pakistan in the form of extreme weather events.
Pakistan is an agro-based developing country and energy is
required to economic growth and meeting the demand of
increasing population. It is beneficial to explore the association
between energy, environment, and agriculture for long-term pol-
icy formulation. Therefore, the present research was designed to
investigate the nexus between agriculture value added, coal
electricity, hydroelectricity, renewable energy, forest area, vege-
table area and GHG emission in Pakistan by using time series data
from 1981 to 2015. The Toda and Yamamoto approach explored
that all the explanatory variables showed causality towards GHG
emission, agriculture value added, coal electricity, hydroelectricity,
renewable energy and forest area. The unidirectional causality was
observed from hydroelectricity to GHG emission, renewable en-
ergy to GHG emission, forest area to GHG emission, hydroelec-
tricity to coal electricity, forest area to coal electricity,
hydroelectricity to the forest area, and vegetable area to forest
area. The bi-directional causality was observed between agricul-
ture value added and forest area. The Toda and Yamamoto do not
distinguish between short and long-run causality. The VECM re-
sults confirmed the long run causality of GHG emission, agricul-
ture value added, and forest area in Pakistan. The annual
convergence from short to long-run equilibrium was 36.8%. Re-
sults suggested that the government should increase the agricul-
ture value added, renewable energy, vegetable area and forest area
because all these variables can off-set the emission increase due to
coal electricity and hydroelectricity.
00 02 04 06 08 10 12 14
5% Significance
Funding source
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
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