Using a neo-classical aggregate production model where capital, labor
and energy are treated as separate inputs, this paper tests for the
existence and direction of causality between output growth and
energy use in China at both aggregated total energy and disaggregated
levels as coal, oil and electricity consumption. Using the Johansen
cointegration technique, the empirical findings indicate that there
exists long-run cointegration among output, labor, capital and energy
use in China at both aggregated and all three disaggregated levels.
Then using a VEC specification, the short-run dynamics of the
interested variables are tested, indicating that there exists Granger
causality running from electricity and oil consumption to GDP, but
does not exist Granger causality running from coal and total energy
consumption to GDP. On the other hand, short-run Granger causality
exists from GDP to total energy, coal and oil consumption, but does not
exist from GDP to electricity consumption. We thus propose policy
suggestions to solve the energy and sustainable development
dilemma in China as: enhancing energy supply security and
guaranteeing energy supply, especially in the short run to provide
adequate electric power supply and set up national strategic oil
reserve; enhancing energy efficiency to save energy; diversifying
energy sources, energetically exploiting renewable energy and
drawing out corresponding policies and measures; and finally in the
long run, transforming development pattern and cut reliance on
resource- and energy-dependent industries