Fossil fuel efficiency as a pathway to decarbonisation and the role of international trade: A perspective of the LCC hypothesis
Annotatsiya
Abstract The continued global dependency on fossil fuel sources in the face of increasing international trade may hamper the goal of decarbonisation. To condense climate risk and attain net zero, efficiency measures are proposed. This study unambiguously investigates the environmental quality implications of fossil fuel efficiency in the face of the international trade based on the Load Capacity Curve (LCC) hypothesis for Canada from 1965 to 2022. The application of a dynamic ARDL simulations method uncovers the following findings: (i) fossil fuel efficiency engenders load capacity factor ( $$lnLCF$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mi>lnLCF</mml:mi> </mml:mrow> </mml:math> ) in the short run (SR) and long run (LR). This suggests a dampening trend of environmental externalities as fossil fuel efficiency increases. (ii) the connection between income expansion and $$lnLCF$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mi>lnLCF</mml:mi> </mml:mrow> </mml:math> follows an inverted U-type pattern, thus invalidating the LCC hypothesis in Canada. (iii) the effect of international trade is positive but only significant in the SR. (iv) urban development is positively linked to $$lnLCF$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mi>lnLCF</mml:mi> </mml:mrow> </mml:math> but its effect is perhaps significant only in the LR. These findings corroborate the responses of the $$lnLCF$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mi>lnLCF</mml:mi> </mml:mrow> </mml:math> to a 1% positive and negative counterfactual shocks in fossil fuel efficiency, income expansion, international trade, and urban development. Moreover, the findings are robust to the results of the nonparametric multivariate quantile-on-quantile regression model. Therefore, the policy take of these results is that to achieve net-zero emissions targets by 2050, environmental policies ought to promote not only fossil fuel efficiency but also the growth of income expansion, trade, and urbanization.