Environment, Development and Sustainability

https://doi.org/10.1007/s10668-020-01176-0

Temperature, energy consumption, and ­Co2 emission: testing

for nonlinearity on USA Economy

Rafik JBIR1,2

Received: 11 June 2020 / Accepted: 16 December 2020

© The Author(s), under exclusive licence to Springer Nature B.V. part of Springer Nature 2021

Abstract
This paper analyzes the nonlinearity between temperature, ­CO2 emission, and energy con-
sumption in US economy. To do this, an ARDL model with linear and nonlinear specifica-
tions has been used over the period between 1990:1 and 2016:12. Our finding indicates
the existence of nonlinearity between variables. Indeed, the nonlinear models show the
existence of a long-run relationship between temperature and electricity consumption and
the economic growth of USA can be negatively affected during the periods of increase in
temperature.

Keywords Temperature · Energy consumption and Co2 emission: Testing for non-linearity
on USAEconomy

1 Introduction

Energy is key for economic development. Without energy, the economy will come to a
standstill, because energy is essential for services and goods production. There are two
types of energy: nonrenewable energy or fossil energy (i.e., the energy obtained from oil,
coal, and natural gas combustion) and renewable energy (i.e., solar, nuclear, biomass, geo-
thermal, and wind energy). According to recent estimates, nonrenewable energy contin-
ues to be the predominantly consumed worldwide, but the share of renewable energy is
increasing rapidly (Gielen et al. 2019).
Various sectors, such as infrastructure, have witnessed rapid growth in recent years,
which has contributed to the development of many national economies. However, such
growth in these sectors also affects economies negatively due to the environmental degra-
dation that arises from the excessive use of energy resources. Indeed, the production, trans-
formation, and consumption of energy have led to emissions of various harmful gases into
the environment. The large proportion of greenhouse gases (GHGs) emitted by the energy
sector constitute the primary cause of climate change, which is associated with increasing
global temperatures (Intergovernmental Panel on Climate Change 2007).

* Rafik JBIR
jbir.rafik@gmail.com
1
University of Gabes, ISGG, Gabes, Tunisia
2
College of Islamic Economics and Finance, Umm Al Qura University, Makkah, Saudi Arabia

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It is well known that creating a green economy and realizing the objective of sustain-
able development are priorities for all countries. In this context, climate change can pose a
challenge to both developing and developed countries. Some estimates show that the rise
in temperature can affect the global economy severely by impacting sectors such as health
care, agriculture, and water resources (Misra 2014).
Tol (2009) noted that increasing energy consumption is the main cause for the rising
global temperature and therefore climate change. The total economic impact of climate
change due to the energy sector is large. Increasing energy consumption impacts the econ-
omy negatively according to various studies that have applied the environmental Kuznets
curve (EKC) hypothesis (e.g., Grossman and Krueger 1991). Moreover, the extent of
energy consumption can differ from one season to another during the year.
Some researchers have considered the temperature–energy consumption relationship
as a linear one. The temperature is assumed to rise and fall with increasing and decreas-
ing energy consumption, respectively. However, this notion has not been confirmed for all
countries. In fact, this relationship may depend on household cooling and heating behav-
iors during periods of increasing and decreasing temperatures, respectively.
Petrick et al. (2010) proposed that the linear relationship between temperature and
energy consumption seems rather counterintuitive. They justified this result by showing the
difference between the reduced heating demand and the increased cooling demand between
warmer and colder countries.
In this study, we investigate a nonlinear hypothesis for the temperature–energy con-
sumption relationship by focusing on ­CO2 emissions and energy consumption in the USA.
Much of the existing literature on the nonlinearity between electricity consumption and
temperature considers heating degree days (HDD) and cooling degree days (CDD) as vari-
ables. Bessec et al. (2007) showed that using HDD and CDD as the study variables has
some drawbacks, because their definitions rely on an arbitrary choice of a threshold value,
generally set to 18.3 °C (or 65°F).
In order to fill this gap, in this study, we use two new nonlinear transformations in addi-
tion to the linear model to test the nonlinearity of this relationship for the economy of
the USA. This arrangement allows us to compare the results of nonlinear transformations
against those of linear transformations.
The remainder of this paper is organized as follows: Sect. 2 presents the literature
review. Section 3 focuses on the data and methodology used in this study. Section 4 ana-
lyzes the empirical results. Section 5 concludes this paper.

2 Literature review

Many past studies have focused on the relationship between temperature and energy con-
sumption (Engle et al. 1992; Akbari 1992; Colombo et al. 1999; Valor et al. 2001; Pardo
et al. 2002; Bigano et al. 2006; Deschenes and Greenstone 2007; Bessec and Fouquau
2007; Hekkenberg et al. 2009; Shu et al. 2018).
Engle et al. (1992) used a dummy variable and showed that holidays and weekends
play significant roles in electricity consumption and temperature relationship. Akbari et al.
(1992) analyzed the impact of climate change (temperature) on energy consumption for the
USA. They proved that a rise in temperature of approximately 0.6 °C increases the cooling
electricity consumption by 0.5% to 3%.

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Temperature, energy consumption, and ­Co2 emission: testing…

Valor et al. (2001) and Pardo et al. (2002) concluded that the relationship between
electricity consumption and daily air temperature in Spain is nonlinear. Bigano et al.
(2006) investigated the relationship between temperature and energy consumption for
3 sectors (residential, industrial, and services) in 26 OECD countries. They concluded
that climate change significantly impacted the energy consumption of the residential
sector only.
The same conclusion about nonlinearity between electricity demand and temperature
was reported by Bessec and Fouquau (2007), who analyzed the monthly data of 15 Euro-
pean countries between 1985 and 2000. Deschenes and Greenstone (2007) applied the
panel data approach to study the impact of climate change on residential electricity con-
sumption in the USA. They found that climate change significantly increased the annual
consumption of residential energy by 15% to 30% between 1968 and 2002.
Hekkenberg et al. (2009) studied the link between electricity consumption and tempera-
ture in the Netherlands for the period 1970 to 2007. Their results confirmed that electricity
consumption increases with high temperatures.
Shu et al. (2018) recently explored the nonlinearity between electricity consumption and
temperature in Taiwan. They confirmed the existence of nonlinearity between these param-
eters for Taiwan between 1983 and 2012.
Many other studies have focused on disaggregate data to estimate the relationship
between energy consumption and climate change. They showed that this relationship
changes between sectors, areas, geographical locations, and weather (temperature and
humidity) (Zhou et al. 2014; Wang and Chen 2014; Dirks et al. 2015; Cruz Rios et al.
2017; To et al. 2017; Sharma and Kumar 2019; Ralston et al. 2019; Adua 2020; Kumari
et al. 2020). Most of these studies conclude that building sector (residential and commer-
cial) as an important electricity consumer, affects negatively environment and economy,
and the consumption of electricity increases in summer and decreases in winter.
Wang and Chen (2014) studied the impact of heating and cooling in residential and
commercial building on climate change in 15 cities in the USA. They proved the exist-
ence of significant impact of energy consumption on environment ­(CO2 emissions), and
this impact varies following the geographical locations.
Zhou et al. (2014) estimated the future energy demand in the USA. They showed that
the net effect of decreases and increases of heating and cooling demand depends on popu-
lation and gross domestic product of state. They conclude that Arizona will be the main
energy consumer in the USA in the next 50 years.
Cruz Rios et.al (2017) have analyzed the relationship between outdoor temperature,
electricity consumption, and production of solar energy in Arizona (USA). They stated that
there is no impact direct of temperature to electricity consumption, but the temperature has
a negative impact on the efficiency of the production of solar energy.
To et al. (2017) have argued that the relationship between temperature and electricity
demand is nonlinear in Hong Kong. Their findings showed that the residential and com-
mercial electricity consumption increases in summer (reaches its maximum in month
august) and decreases in winter (reaches its minimum between December and march).
Sharma and Kumar (2019) investigated the seasonal variation on electricity consump-
tion in building sector composed by many blocks. Their results indicated that the electric-
ity consumption increases during the period of high temperature, especially in blocks of
computer laboratories and offices.
Kumari et.al (2020) discussed the role of urbanization in energy consumption. They
showed that in India, energy consumption on urban areas is higher than on the rural areas
one. They found also that the highest consumption is made by the building sector.

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Adua (2020) has focused on the relationship between householders’ energy behavior
and residential energy consumption. He reported that the energy efficiency technologies
influence the householders’ behaviors on home heating and cooling temperature and there-
fore the energy consumption.
Following these studies, in this work, we focus on the nonlinearity between electricity
consumption, temperature, and environmental conditions for the US economy. To this end,
we use two new nonlinear transformations in this empirical study.

3 Empirical model and data

In this section, we describe our data sources and the procedure that we will employ in
empirical section.

3.1 Data

We use monthly variables to study the correlations between temperature (°C), ­CO2 emis-
sions (MMT), and energy consumption (trillion BTU) in the residential sector. We consider
the logarithm of ­CO2 emissions from the residential sector ­(LCO2), the logarithm of energy
consumption of the residential sector (LECRS), and temperature (T). For linear model, we
apply the Hodrick–Prescott filter to the temperature variable (T) for seasonal adjustment.
The data cover the period 1990:1-2016:12. All data are collected from US Energy Infor-
mation Administration (March 2019 Monthly Energy Review).
To test the asymmetric relationship between our variables, we introduce the following
two nonlinear transformations:
First, we separate between the increases and decreases in temperature by creating two
variables: the temperature increase (Ti) and the temperature decrease (Td).
{ }
Tit = max(0, ΔTt )

{ }
Tdt = min(0, ΔTt )

where ΔTt = Tt − Tt−1, ΔT is the monthly change of temperature.

By separating between the increases and decreases in temperature, we can verify
whether the impact of temperature increase in energy consumption is negative or not.
Moreover, we study if the impact of increase is different from the impact of decrease.
Finally, we check whether there is compensation between the two effects (effect of tem-
perature rises and the effect of temperature declines).
Second, to consider, the weather shocks of different seasons (especially summer and
winter), we define the net temperature increase (NTI3). The NTI3 is the percentage of the
increase in the temperature if the temperature of the current month (at the date t) exceeds
the maximum of three previous months, and zero if not. The NTI3 variable is presented as
follows:
NTI3 = max{0, Tt − max(Tt−1 , Tt−2 , Tt−3 )}

where Tt is the temperature at the month t.

The NTI3 transformation can determine the change in maximum temperature every
season.

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Temperature, energy consumption, and ­Co2 emission: testing…

By introducing these two transformations, we can compare the result of the linear mod-
els (T) and the nonlinear models (Ti , Td and NTI3).

3.2 The model

In this study, to test the existence or not of cointegration between variables (temperature,
energy-consumption, and environment (­CO2 emission)), we estimate an autoregressive
distributed lag (ARDL) model. Contrary to the approaches of some studies (Engel and
Granger 1987; Johansen 1991; Johansen and Juselius 1990), which require that series must
be integrated with the same order, the ARDL model can study the cointegration between
variables even if variables are integrated with different orders (I(0) and I(1)). We employ
the cointegration test of Pesaran et al. (2001) « bounds test» developed by Pesaran et Shin
in 1999 to verify the existence of long-run relationship between variables.
The ARDL model can estimate the short-run effects and the long-run dynamics.
We consider an ARDL (p, q,…, q) model:
yt = 𝜑 + a1 yt−1 + ⋯ + ap yt−p + b0 xt + ⋯ + bq xt−q + 𝜇t
(1)
p ≥ 1, q ≥ 0

If the lag order q is the same for all variables in the K × 1 vector xt , the model can be
written as follows:
p q
∑ ∑
yt = 𝜑 ai yt−i + bj xt−j + 𝜇t (2)
i=1 j=1

with 𝜇t is error term. b0 is the short-run effect of xt on yt.

The long-run relation is ∑ given by: yt = k + 𝜙xt + et and 𝜙 represent the long-run effect
b
calculated as follows: 𝜙 = (1−aj ).
i

3.3 Causality test of Toda‑Yamamoto (1995)

We will use the causality tests of Toda-Yamamoto (1995) to determine the direction of cau-
sality between variables. Toda-Yamamoto (1995) have proposed nonsequential procedures
to test causality between series. They estimate a VAR model in corrected level and, then,
use this model to test the causality.

4 Empirical results

4.1 Descriptive statistics and correlation

Table 1 reports the descriptive statistics of the three variables. The mean and standard
deviation of temperature, ­CO2 emission, and energy consumption are, respectively, equal
to 7.610, 4.511, 7.396, and 9.087, 0.214, 0.465. Table 1 shows also that the series are plat-
ykurtic with a positive skewness. The skewness values are equal to 0.0157 for temperature,
0.3564 for ­CO2 emission, and 0.4651 for energy consumption. The kurtosis values of all
variables are positive and less than 3. The Jarque–Bera statistic and probability indicate
that all variables are clearly not normally distributed.

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Table 1  Descriptive statistics Mean Std. dev SK Kur J-B P value of J-B

T 7.610 9.087 0.0157 1.5201 29.5767 00.000

LCO2 4.511 0.2147 0.3564 2.3620 12.355 00.000183
LERCS 7.396 0.2079 0.4651 2.3597 17.215 00.002076

Table 2 presents the empirical results of the correlation coefficients between the three vari-
ables. It shows that all coefficients are significantly different from zero.
From Table 2, we conclude that a strong correlation can exist especially between energy
consumption for the residential sector and the environment ­(CO2 emission) and between tem-
perature and the environment.

4.2 Unit root test results

The first step of empirical analysis is usually to verify that the variables are stationary or not.
To test the presence of unit root and therefore the degree of integration of series, we use aug-
mented Dickey–Fuller (ADF) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS) tests. Table 3
reports the results of these two tests. According to the results of ADF tests, we can clearly
reject the hypothesis of the presence of unit root for the three series. The results of KPSS tests
show that the ­LCO2 and LECRS series are also integrated of order one, but the temperature
variable is integrated of order zero I(0). Thus, from the ADF and KPSS results, we prove that
the hypothesis of nonstationarity cannot be rejected for the first-difference time series for all
variables. We can then conclude that the ­LCO2 and LECRS series are integrated of order one
I(1), and the temperature is integrated of order zero I(0).
Given a difference of the order of integration between temperature and C ­ O2 emission and
energy consumption, we can use the ARDL model to study the short- and long-run relation-
ship between variables.

4.3 Results of causality tests of Toda‑Yamamoto (1995)

Table 4 presents the causality test results of Toda-Yamamoto (1995) (causality/block exogene-
ity Wald tests) for all models.
Toda-Yamamoto’s (1995) test results indicate that for the linear model (T), there is only a
unidirectional causality from energy consumption to temperature. By contrast, for nonlinear
models, causality exists in two directions between all variables, except for the NT3 model.
Indeed, the majority of variables are jointly influenced by one another and cannot be treated
as pure exogenous variables. For the NT3 model, the results indicate a unidirectional causal-
ity from temperature to energy consumption and C ­ O2 emission. Causality in two directions

Table 2  Correlation coefficients LCO2 T LECRS

of T, ECRS, and C­ O2
LCO2 – − 0.5470 0.6263
T − 0.5470 – − 0.4764
LECRS 0.6263 − 0.4764 –

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Temperature, energy consumption, and ­Co2 emission: testing…

Table 3  Unit root tests (ADF and Variables Constant (i) Constant and trend (ii)
KPSS)
ADF
Level First difference Level First difference

t −1.7046 −16.9309* −2.4192 −16.9182*

LCO2 −1.1741 −23.0787* −1.7723 −23.6209*
LECRS −2.1857 −27.4622* −2.1968 −27.7490*
KPSS
t 0.1782* 0.111* 0.0915* 0.0569*
LCO2 0.7995 0.0849* 0.5567 0.0613*
LECRS 1.8268 0.0752* 0.2311 0.0729*
Critical levels KPSS
1% 0.73 0.21
5% 0.46 0.14
0.34 0.11
10%

*, **: significatively at level of 5% and 10%

LECRS logarithm of energy consumption of residential sector, T tem-
perature, ­CO2 ­CO2 emission

Table 4  Results of variables causality of Toda-Yamamoto (1995)

Dependent variable Excluded variables Block exogene-
ity all variables
LECRS T LCO2 together

LECRS – 5.8726(0.0531) 15,010 (0.000)* 15,511.40 (0.00)*

T 89.4094(0.00)* – 102.36 (0.000)* 263.659 (0.00)*
LCO2 7.8609(0.0196)** 17.4830(0.0002)* - 32.7677(0.00)*
LECRS TI LCO2

LECRS – 187.666(0.00)* 21,796.02(0.00)* 24,477.98(0.00)*

TI 49.0235(0.00)* – 6.0377(0.0489)** 133.2676(0.00)*
LCO2 11.2375(0.0036)** 53.6330(0.00)* – 70.5796(0.00)*
LECRS TD LCO2

LECRS – 291.5232(0.00)* 20,156.85(0.00)* 29,600.53(0.00)*

TD 33.9090(0.00)* – 49.2197(0.00)* 83.4275(0.00_*
LCO2 27.6434(0.00)* 165.1842(0.00)* – 187.2590(0.00)*
LECRS NTI3 LCO2

LECRS – 68.5139(0.00)* 16,807.39(0.00)* 18,601.1(0.00)*

NTI3 1.3789(0.5018) – 5.02717(0.081) 39.0608(0.00)*
LCO2 19.394(0.0001)* 48.8087(0.00)* – 65.5335(0.00)*

*, **significatively at level of 1% and 5%. The values in each box represent Chi-square (Wald) statistics
for the joint significance of each other lagged endogenous variables in that equation. The statistics in the
last column is the Chi-square statistics for joint significance of all other lagged endogenous variables in the
equation

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also exists between energy consumption and C ­ O2 emission. Overall, the block exogeneity tests
show different results between the linear and nonlinear models.

4.4 ARDL model estimation and bounds test results [test of Pesaran et al. (2001)].

To estimate and select the optimal ARDL model, we use the Schwarz information criterion
(SIC).

4.4.1 Bounds test results for linear specification (T)

Because the variables are integrated of different order, we can use only the cointegration
tests of Pesaran et al. (2001) or bounds tests.
In bounds test, the hypothesis stated is:
H0: no cointegration equation.
H1 ∶ H0 is not true.
We reject the null hypothesis if the calculated F-statistic is greater than the critical
value. This is mean that there is a cointegration between variable. Then we estimate the
long-run model (the error correction model (ECM)).
We cannot reject the null hypothesis if the calculated F-statistic is lower than the critical
value and we estimate the short-run model.
Table 5 shows the results of bounds test.
As F-statistic = 2.714300 is lower than critical value I(0), which is equal to 3.1 at the 5%
level, we cannot reject the null hypothesis that there is no cointegration and therefore no
long-run relationship between variables. The same result of no cointegration between vari-
ables is detected when we consider ­CO2 emission or temperature as the dependent variable.
The F-statistics are equal to 1.744089 and 2.444626, respectively, which are always lower
than the critical value I(0) equal to 3.1 at the 5% level. Therefore, we can conclude that an
impact only occurs in a short run between variables.

4.4.2 Bounds test results for nonlinear specifications (Ti, Td, and NTI3)

The results of the nonlinear models state that there is a long-run relationship between vari-
ables when electricity consumption is the dependent variable.
Table 6 reports the results of bounds tests.
Table 6 indicates that at the 5% level, we can reject the null hypothesis that there is
a cointegration and therefore a long-run relationship between variables, except in the
TD specification. For the TD specification, the F-statistic = 3.489571 is between the two
bounds of 3.1 critical value I(0) and 3.87 for I(1). From econometric perspective in this

Table 5  Bounds test results Test statistic Value Signif (%) I(0) I(1)
linear specification (LECRS
dependent variable)
F-statistic 2.714300 10 2.63 3.35
k 2 5 3.1 3.87
2.5 3.55 4.38
1 4.13 5

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Table 6  Bounds test results Test statistic Value Significance (%) I(0) I(1)
nonlinear specification (LECRS
dependent variable) NT3
F-statistic 4.727908
TI
F-statistic 11.46896
TD
F-statistic 3.489571
10 2.63 3.35
5 3.1 3.87
2.5 3.55 4.38
1 4.13 5

situation, we cannot conclude whether a cointegration occurs. Overall, the nonlinear mod-
els show a different result for each model.
For the TI model, temperature and ­CO2 emission have an impact on electricity con-
sumption at the long run, as shown in Table 7.
Table 7 reveals that the emission of C ­ O2 in atmosphere is one of the main causes of
the increase of energy consumption. At the long run, ­CO2 emission contributes to a 0.65%
increase of energy consumption. At the 10% level of significance, a 1% increase in tem-
perature increases energy consumption by approximately 0.29% in the long run. This result
confirms the finding of Akbari (1992) for the US economy.
Table 8 shows the results of the long-run coefficient estimation for the NTI3 model.
As Table 8 shows, C ­ O2 emission has a long-run impact on energy consumption. A 1%
­ O2 emission leads to an increase of approximately 0.77% in energy consumption.
increase in C
On the contrary, temperature has no direct impact on energy consumption in the long run.
As our results above show, this study suggests that there is a nonlinearity between
temperature and energy consumption in the US economy. This result confirms the find-
ings of several studies in many countries (Akbari 1992; Valor et al. 2001; Pardo et al.
2002; Bessec and Fouquau 2007; To et al. 2017; Shu et al. 2018). The increases in tem-
perature and ­CO2 emission lead to an increase of energy consumption, as shown in the

Table7  Long-run coefficient Dependent variable: LECRS

results (TI model)
Variables Coefficients t-Statistic Probability

LCO2 0.658528 2.655050 0.0084

TI 0.294506 1.758373 0.0798
C 3.726265 3.395589 0.0008

Table 8  Long-run coefficient Dependent variable: LECRS

results (NTI3 model)
Variables Coefficients t-Statistic Probability

LCO2 0.770557 3.626514 0.0003

TI − 0.036517 − 0.366400 0.7143
C 3.888022 4.089312 0.0001

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results of the nonlinear model (Ti model). High levels of temperature and C ­ O2 emission
lead to more energy consumption, which in turn stimulates ­CO2 emission and there-
fore temperature. This result is also consistent with the result of Petrick et al. (2010),
who states that considering the linear relationship between energy consumption and
temperature is counterintuitive. Moreover, as in the study of Aviral (2011), this paper
investigated the short- and long-run impact of temperature to energy consumption and
environment. The results indicate that only the nonlinear models show a long-run rela-
tionship between temperature and energy consumption.
Contrary to the majority of the studies based on (HDD) and (CDD) definition of tem-
perature variable, in our study, the results show that we can use other temperature vari-
ables (TI and NTI3) to investigate the nonlinearity of the relationship between tempera-
ture and energy consumption.
This study can be extended by introducing further variables and data for many coun-
tries. Future researches can be developed in other countries and using sectoral and
regional data. We can also introduce other types of gas for better appreciation of the role
of energy consumption on environment degradation.

5 Conclusion

In this study, we focused on the relationship between energy consumption by residential

sector, ­CO2 emission, and temperature in the USA. To test the nonlinearity between
variables, three nonlinear specifications were used in addition to the linear model. The
results of Toda-Yamamoto’s (1995) causality tests (block exogeneity Wald tests) showed
that there is a difference between the two types of models (nonlinear and linear models).
The nonlinear models (TI and TD) show a causality in two directions between all vari-
ables. The third nonlinear model (NTI3) indicates the existence of causality from tem-
perature to energy consumption and C ­ O2 emission. However, the linear model shows
causality only from energy consumption to temperature. The results of the cointegration
tests (bounds tests) also show a difference between the results of the linear and nonlin-
ear models. Specifically, the linear model finds only a short-run relationship between
­CO2 emission and energy consumption, whereas the nonlinear models (TI and NTI3)
confirm the existence of a long-run relationship between variables. We conclude that
a nonlinearity exists between temperature, C ­ O2 emission, and energy consumption in
the US economy over the period 1990–2016. The increases in temperature and ­CO2
emission lead to an increase of energy consumption. This boom in energy consumption
contributes to the increase in ­CO2 emission and temperature and can, therefore, hit the
economy negatively. These results are in agreement with recent studies (To et al. 2017;
Shu et al. 2018; Mosikari and Eita 2020 and Mohd Shahidan et al. 2020). The economic
growth of the USA can thus be negatively affected during the periods of temperature
increase by energy consumption and ­CO2 emissions, as shown by Aviral (2011), Saidi
and Hammami (2015), and Colacito et al. (2019). These results can encourage policies
that will rationalize energy consumption, protect the environment, and be followed by
many countries, especially during high-temperature periods. The USA must continue its
reforms and replace nonrenewable energy as its main source of energy with renewable
energy, which pollutes the environment less than fossil energy, especially for electricity
production.

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