Exchange Rate Dynamics, Energy Consumption, and Sustainable Environment in Pakistan: New Evidence From Nonlinear ARDL Cointegration

Pakistan's local currency has been devalued during different exchange regimes, which may substantially affect energy consumption and CO 2 emissions. Therefore, this study investigates the effects of exchange rate depreciation on Pakistan's CO 2 emissions and energy consumption from 1990–2018. We apply the nonlinear autoregressive distributed lag (ARDL) cointegration approach for the empirical analysis and found that exchange rate depreciation increases CO 2 emissions and energy consumption in both the short and long runs. These results suggest that currency devaluation has an expansionary effect which enhances economic growth at the cost of high energy consumption and CO 2 emissions. Therefore, the government needs regulations along with an exchange rate policy to control CO 2 emissions. Moreover, the government should search for alternate energy resources such as renewable energy resources that meet the country's energy needs and mitigate CO 2 emissions.