Uncovering the Structural Drivers of Carbon Emissions in Malaysia: Energy Demand vs. Macroeconomic Determinants

Rapid industrialization and urbanization in Malaysia have driven substantial economic expansion alongside a sharp escalation in carbon dioxide () emissions, creating a major policy tension regarding its commitment to reduce carbon intensity by 45% by 2030. This study examines the symmetric and asymmetric long-term relationships, cointegration, and dynamic causality among GDP, energy consumption, renewable energy, urbanization, industrialization, and emissions within a unified dynamic framework. Empirical results reveal that energy consumption is the sole statistically significant driver of Malaysia's long-run carbon emissions, whereas GDP, renewable energy, urbanization, and industrialization exert no statistically significant direct impact. Crucially, the statistical insignificance of GDP refutes the applicability of the Environmental Kuznets Curve (EKC) hypothesis in Malaysia, demonstrating that higher income levels will not automatically induce environmental recovery past a specific development threshold. Therefore, policymakers cannot rely on passive economic growth to achieve sustainability. To effectively decouple economic progress from carbon output, national frameworks must move beyond income-driven assumptions and implement targeted interventions focused on direct energy demand management, fossil fuel subsidy reforms, and aggressive clean-energy substitution.