China is among the largest energy consumers in the world, and its trade openness, industrialization, and urbanization are the main factors that account for high energy consumption. Energy consumption plays an important role in the development of an economy, however, energy consumption and production contain some externalities, such as pollution and greenhouse gases, which eventually undermine economic sustainability (Shi, 2015). Trade openness and urbanization policies may have potential implications for the energy consumption and sustainable growth of the economy. Therefore, it is essential to understand the relationship between trade openness and energy consumption. Besides, trade and energy consumption have crucial importance for several reasons, such as the inefficient energy policy may lead to lower trade and economic activities, (b)s the energy conservation policies that reduce the energy consumption will counterbalance the trade liberalization policies developed to promote the economic activity (Koengkan, 2018; Sadorsky, 2014b), (c) there is a unidirectional relationship from trade to energy consumption which indicates that trade policy increases energy consumption while conservation policies will not affect the liberalization policies. Trade openness may influence the country’s energy consumption due to an increase in economic activities. The export sector especially the industrial export expansion increases the demand for consumption.
Apart from the above reasons, trade openness allows the country to import commodities that may cause high energy consumption, for example, automobile, industrial inputs, etc. Moreover, the income effect is also one the main cause of high energy consumptions that especially resulted due to the trade liberalization; as trade account for a rise in the income of the people that would account for adaptation of complimentary technological equipment that requires a high level of energy consumption. Trade openness increases energy consumption both in the long run and short run in the context of Middle Eastern Countries; mainly due to the positive effect of imports and exports and economic activities (Sadorsky, 2011).
Urbanization is commonly termed as an essential driving force that accounts for more energy consumption, CO2 emissions, industrial development, and improvement in living conditions. In 1960, the urban population at the global level was 34 % of the total; however, by 2014, it accounted to grow for 54 % of the total countries. This increasing urbanization ongoing growth of the world’s population and expecting an increase of 2.5 billion more people by the year 2050, according to United Nations forecast is expected to add up in the urban population, of which Asia and Africa are among the top of the list. Moreover, by 2030, 24 mega-cities will be added to the number compared to 2000, which was accounted for 17. Asia and Africa, represent the highest rates of urbanization, mainly because of the two reasons; an increase in a natural population, and rural to urban. Urbanization may result in the rise of energy consumption, degrade the environment, increases energy-related greenhouse gas emissions, and exacerbated global warming (Creutzig, Baiocchi, Bierkandt, Pichler, & Seto, 2015; Güneralp et al., 2017; Kennedy, Ramaswami, Carney, & Dhakal, 2009).
Urbanization leads to an increase in the urban population and causes an upserge in energy consumption in rural areas. Besides, the urban area's labor force contributes to the production sector leading to a further increase in energy consumption. Energy consumption up surging has manifold implications for the environment and human health; especially energy based on fossil fuel degrades the atmospheric environment, and negatively affects human health. Poor air quality has a significant impact on the health of many urban residents, and unsightly put a layer of dust on plants, buildings, and other surfaces. The ground facts support that half of the world population nowadays live in urban areas. Cities almost consume 50% of overall energy and produce almost 60 % of carbon dioxide emission that provides input to overall global warming. However, the rapid increase in CO2 emission has been reported from the developing economies, especially, the Asian Region with China and India at top of the list since 2005. Therefore, an appropriate energy policy along with urbanization holds a combinatory status.
Trade is also a key determinant that affects the energy consumption level of the country. In this regard, footprints about the effect of trade openness on renewable and non-renewable have been addressed in the body of literature. The effect of trade on aggregate energy consumption is relatively rich as compared to renewable energy only. Similarly, Khan, Yu, Belhadi, and Mardani (2020) argue that international trade has positive nexuses with the country’s renewable energy. The study suggests international trade with a special focus on renewable energy. The growth in renewable energy can be vital to maintain and enhance environmental sustainability (Ponce & Khan, 2021). While discussing the relationship of trade liberalization with energy consumption. It was observed that liberalization encourages renewable energy that resultantly accounts for environmental sustainability (Ponce & Khan, 2021). While in another study, Ponce and Khan (2021) report that trade activities mainly focusing on renewable energy consumption contribute to CO2 reduction in developed nations of the world.
According to Wu, Bazer, Cudd, Meininger, and Spencer (2004), ‘China's growth miracle since the 1980s, there has been a rapid increase in urbanization. The country's urbanization rate, during the period from 1978 to 2012 increased from 17.92–52.57%. As per China Statistical Bureau (2012), the population of urban increased by 10 million, and newly 498 cities were recognized in the same period. Thus, China is shifting from an industrial urban society to an agricultural society (Deng et al., 2008; Lin, 2002). This increased urbanization has consequently resulted in problems for environmental protection, and energy savings. According to China Energy Statistical Yearbook (CESY, 2012), consumption of energy increased from 410.1 million tons of oil equivalent (Mote) in 1980, to 2735.2 mote in 2012. According to World Bank (2015) report, China has become the world's largest emitter of greenhouse gases, showing a vigorous growth from 1467 megatons in1980, to 8287 megatons in the year 2010.
A more recent forecast by the International Energy Agency, showing continuous growth and forecast that energy consumption in China will reach 5500 mote, almost double the US level, and will account for more than a quarter of the world's total energy consumption by 2040. According to China Energy Statistical Yearbook (CESY, 2012), 60% of this energy, in China was consumed in cities, and on average energy consumed in the urban population individually is on average 1.3 times that consumed by the rural population. However, increasing the usage of petrol and the burning of coal has caused serious problems with public health. As per statistics, more than one million people died in China from air pollution created by transportation. The main source behind is cars as a source of PM 2.5, and haze weather every year, which the central government and local authorities both consider the most important environmental problem. Besides, urbanization China gains significant achievement in world trade, according to the Center for Strategic and World Bank (2015), the share of China in exports was 13.45% in 2015, and China achieved double digits economic growth for a decade. Both trade and urbanization may have significant implications for energy consumption in China.
Although urbanization and energy are extensively discussed by many studies (Abbasi & Riaz, 2016; Al-mulali, Sab, & Fereidouni, 2012; Ewing & Rong, 2008; M. S. Hossain, 2011; K. Jones, 1989; Lariviere & Lafrance, 1999; Parikh & Shukla, 1995; Poumanyvong & Kaneko, 2010b). However, there is still lack of consensus. Most of these studies focused on the urbanization, and energy consumption relationship and few studies investigated how urbanization affects renewable and non-renewable energy consumption. While in the existing body of knowledge some studies explored the relationship between urbanization and energy consumption in China (Dhakal, 2009; Liu, 2009; O'Neill, Ren, Jiang, & Dalton, 2012; Poumanyvong & Kaneko, 2010a; C. Zhang & Y. J. E. p. Lin, 2012). Some of the studies noticed that more trade activities result in more renewable and non-renewable energy consumption (Akbar, Yuelan, Maqbool, Zia, & Saeed, 2021). While, exploring the nexus between urbanization, and energy consumption some studies pointed that urbanization can cause more energy consumption in the country (Guo & Pachauri, 2017; Keho, 2016). Due to this prevailing gap, the motivation of the paper has been raised purely by studying the relevant literature. As none of the studies exists that simultaneously focuses on the relationship of trade openness and urbanization with renewable, and non-renewable energy consumption.
The study contributes to the existing literature from the following aspects. Firstly, most of the previous studies discussed either renewable energy or non-renewable energy consumption with trade policy separately, however trade may affect both renewable energy, and non-renewable energy consumption. Therefore, this study contributes to the literature by adding both types of energy consumption in a single study which may provide detailed insight into the degree of influence of trade openness for both renewable energy or non-renewable energy consumptions in China. Secondly, the results of this study provide information about the relative degree of renewable and nonrenewable energy consumption in response to trade openness and urbanization in China. Thirdly, we use the Quantile Regression technique for the empirical analysis; which may provide more comprehensive information on trade and urbanization policies for both renewable and non-renewable energy consumption in different quantiles.
As the above paragraph clearly chalk out the claim of this research being a novel work as the previous letreature do not offer any robust study that explores the impact of both trade and urbanization on renwable and non-renwable energy consumption in the context of China, and it is evident from the statistics that China gained remarkable upsurge in both trade liberty and urbanization which have shifted the energy consumption curve of all types in the country. Perhaps, the magnitude of effect of the trade and urbanization on renewable and non-renewable energy is not exactly known in the chinees case. Therfore, this study aims to analyze the effect of trade openness and urbanization on renewable and non-renewable energy consumption in China.
The rest of paper is senthesized as the second section describes literature while third and fourth section show the hypothesis development and stylized trends respectively. The fifth section contains the dimensions of the methodology while sixth and seventh section eleborate the empirical results and conclusion of the study.