Sectoral Energy Consumption and Environmental Degradation in Pakistan: An Empirical Evidence from Correlated Component Regression

Abstract

This study has investigated the sectoral energy consumption influences on CO2 emissions in Pakistan while
analyzing data from 1992 to 2022. The correlated component regression method has been adopted in this research
because it works effectively to address multicollinearity challenges, manage high-dimensional datasets with
limited sample size and numerous independent variables and also produce reliable results. Moreover, as a
relatively new methodological approach, the correlated component regression provides a novel contribution to
analyzing complex data structures. Our findings show that oil consumption in five sectors including household,
industrial, transport, power and government produces increased CO2 emissions which enhances environmental
pollution. According to the estimated results, increasing oil consumption by 1 percent in the households,
industries, transport, power, and government sectors leads to an increase in CO2 emissions by 0.010 percent,
0.025 percent, 0.118 percent, 0.010 percent and 0.016 percent, respectively. In contrast, oil consumption in the
agricultural sector indicates a negative effect on CO2 emissions, implying a 0.024 percent decrease in
environmental pollution following a 1 percent increase in agricultural oil consumption. Moreover, gas
consumption in the household, commercial, fertilizer, power, industrial and transport sectors is found to have a
positive relationship with CO2 emissions. A 1 percent increase in gas consumption in the household, commercial,
fertilizer, power, industrial and transport (CNG) sectors leads to an increase in environmental pollution by 0.047
percent, 0.061 percent, 0.223 percent, 0.093 percent, 0.055 percent and 0.010 percent, respectively. Conversely,
gas consumption in the cement sector demonstrates a negative influence on CO2 emissions, suggesting that
environmental degradation decreases by 0.014 percent following a 1 percent increase in cement sector gas
consumption. Additionally, coal consumption in the power and brick kiln sectors, both have positive effects on
CO2 emissions, showing that a 1 percent increase in coal consumption in the power and brick kiln sectors leads
to a 0.014 and 0.039 percent corresponding increase in CO2 emissions. Based on the study’s findings following
are the key recommendations. Energy-saving technologies should be promoted in high emissions-intensive
industries and renewable energy-based technologies including solar and wind along with public and electric
transportation should also be encouraged. The gas-using sectors need to adopt hydrogen and biogas as cleaner
alternatives for their operations. The power and brick kiln sectors need to transition their coal usage with
renewable power generation technologies while the fertilizer sector requires low-emissions-intensive solutions.