CO2 EMISSIONS, COAL RENTS, AND ENERGY OUTPUT: DO REGULATORY QUALITY MATTER IN BRICS ECONOMIES? Moses Iga Gumede, Adedoyin Festus Fatai*, and Muhammed Kabir African Development Bank, Pretoria, South Africa [m.gumede@afdb.org] KDI School of Public Policy and Management, South Korea [festusabdulfatai@kdis.ac.kr] *Corresponding Author Ph.D. Candidate, Lancaster University, United Kingdom [princekabir@gmail.com]

Motivation Energy consumption is critical in economic growth and one of the drivers for sustainable development. Energy output systems have externalities to environment and social well-being such as Pollution, CO2 emissions, etc. Environmental and Social degradation externalities have been associated with non- renewable energy sources, fossil fuels (Coal). BRICS countries (Brazil, Russia, India, China & South Africa) are heavily dependent on energy output for GDP, especially Coal Consumption).

Why BRICS? BRICS countries have abundant Natural Resources (Coal) endowments for energy output (SD) BRICS countries are one of the top world CO2 emitters. BRICS economies share about 30% of the World GDP. BRICS countries are signatories to the Paris Agreement (COP21)!

Coal Rents Natural Resources utilization results in natural resources rents – (Revenues), which could be Positive or Negative (Arnason, 2008). Natural resources rents (Coal Rents) also contribute to GDP in BRICS and other world coal exploring countries. Coal Rents - revenues above the domestic costs of production for coal, are measured at world prices given that Coal is traded on world commodity markets like Gold, Oil, etc.

Research Questions Causality between Coal Rents and CO2 emissions How do coal rents relate with carbon dioxide (CO2 ) emissions? How does coal energy output relate with CO2 emissions? How does renewable and nuclear energy output relate with CO2 emissions? How does regulations to CO2 emissions compare between BRICS and other coal consumption dependent countries?

Literature Review Summary of Past Findings Various studies have suggested causal relationships between economic growth, energy consumption and CO2 emissions (Yoo, 2006; Akinlo, 2008; Odhiambo, 2010; Apergis & Payne, 2010; Cowan, Chang, Inglesi-Lotz & Gupta, 2014). Energy consumption and economic growth (Energy-Output Nexus). Coal Consumption and Economic growth (Coal Energy-Output Nexus). Economic growth and CO2 emissions (Energy- CO2 Nexus). Clean Coal Technology (CCTs) for efficiency of energy systems. Energy consumption plays a significant role in economic growth, but leads to CO2 emissions. Clean coal technology would help improve energy efficiency. This study provides necessary inputs to policymakers of BRICS and PSC countries to establish how cost of coal production would affect CO2 emissions.

Methodology and Data Data Structure and Sources Panel Data of 5 BRICS and 60 selected economies (WDI, 2017) from 1990 – 2015: BRICS: N = 5 and T = 26, then PSC: N = 60 and T= 26 To Confirm robustness of the findings and address drawbacks related to omitted variable bias, measurement error and simultaneity bias or reverse causality, two (2) distinct techniques are applied; (i) Ordinary Least Squares (OLS) with pooled data (Pooled OLS) (ii) Fixed Effects (FE) estimation Empirical Model Specification and Expected Results EMit = β0 + β1CRit + γ0Zi + εit EMit is CO2 Emissions CRit is the Coal Rent Zit is a vector of other controls. Coefficients β0 and β1 are the parameters of interest, and γ0 captures the effects of the control variables in Zi. εit is the error term over time. Variable Dependent Variable: CO2 Emissions (Mt) Expected Sign Coal Rents (% of GDP) Positive Nuclear Energy Production (% of Total) Negative Renewable Energy production (% of Total) Coal Energy Production (% of Energy Total) GDP per Unit of Energy use ($/kg of Oil) Regulations

Results and Discussion Estimation Results of CO2 Emissions – BRICS: Coal Rents are positive and statistically significant at 1% level with coefficient of 0.081 in the Fixed Effects Model. 1% increase in Coal rents will result in an increase to CO2 emissions by 0.081% in BRICS countries. Robust standard errors in parenthesis * p<0.05; ** p<0.01, *** p<0.001 Fixed Effects method is preferred for estimation of the CO2 emissions equation based on the Hausman test (Prob> Chi2 = 0.000).

Results and Discussion Estimation Results of CO2 Emissions – PSC: Coal Rents are positive and statistically significant at 1% level and coefficient of 0.023 in the Fixed Effects Model. 1% increase in Coal rents will result in an increase to CO2 emissions by 0.023% in PSC. Robust standard errors in parenthesis * p<0.05; ** p<0.01, *** p<0.001 Fixed Effects method is preferred for estimation of the CO2 emissions equation based on the Hausman test (Prob> Chi2 = 0.000).

Summary of Main Findings For hypothesis testing and a-priori expectations, the empirical results are consistent with the empirical evidence documented in the literature. There is a statistically significant and positive relationship between Coal rents and CO2 emissions. Therefore, an increase in coal rents will increase CO2 emissions and frustrate efforts towards sustainable development. More coal rents from coal exploration would increase coal consumption, which in turn would increase CO2 emissions levels and affect sustainable development in BRICS. There is a positive relationship between Coal Energy Output and CO2 emissions. An increase in coal energy consumption would increase CO2 emissions levels. There is a negative relationship between Renewable Energy Output and Nuclear Energy Output – An increase is renewable and nuclear energy output will reduce CO2 emissions. There is a positive relationship between regulations and CO2 emissions, and it is the same for both BRICS and Panel of Selected Countries (PSC) - Imposing regulations to coal consumption in form of CO2 damage costs would have no effect to reducing CO2 emissions.

Policy Recommendations Research findings have implications for policymakers in each of the BRICS and PSC. To curb CO2 emissions levels, without harming GDP and sustainable development, the following policy recommendations are proposed: Honor and sustain commitments to COP21 (the Paris Agreement): “Climate Action” is Sustainable Development Goal No. 13 under the UN 2030 Agenda for Sustainable Development (SDGs) Increasing the Coal Production Costs: Coal rents would be negative and thus deter the exploitation of coal for energy consumption, reduce trade prices on world commodity markets, thereby reduce CO2 emissions from coal energy output. Energy Conservation for environmental and social sustainability Policies: Consider strict energy and environmental policies that encourage increase in use of energy consumption from renewable energy sources, and application of Clean Coal Technology to reduce CO2. Re-consider the introduction and imposing of regulations: Rather reduce the subsidies to fossil fuels to minimize coal production than Carbon tax. Making fossil fuels like coal expensive would discourage their exploitation for coal energy output reduce CO2 emissions.

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