Impact of Palm Oil Industry and Agricultural Growth on Carbon Dioxide Emission in Malaysia: ARDL Approach

Palm oil industry has significant contribution towards Malaysian economic and employment creation. However, apart from its massive contribution to economic generation and Malaysian GDP, the palm oil manufacturing is one of the activities that crucially claimed as a pollutant manufacturing and affects the environment. As worldwide consumers are predominantly aware on the importance of sustainability in production of goods, more company and industry are moving towards more sustainable approach in production activities including Malaysian palm oil manufacturing industry. The objectives of the study are to identify the impact from palm oil production, oil palm planted area and GDP towards carbon dioxide emission and to estimate the causality relationships between the determinants of carbon dioxide emission from the Malaysian palm oil industry. The unit root test will be used namely Augmented –Dickey Fuller Test (ADF) and Philip- Perron (PP) test for the initial data test. There is a mixture of stationary and non- stationary variables; the determinants identified by Auto Regressive Distributed Lagged (ARDL) method. Causality test used is Pairwise Granger Causality Test. The results indicate the existence of long run relationship among carbon dioxide emission with all the explanatory variables. Palm oil industry had improved their negative externalities by resulting negative relationship towards carbon dioxide emission through increasing planted area and agriculture output. Instead, the production of palm oil still has direct causality towards the carbon dioxide emission in Malaysia. The results clearly stated that the increase of carbon emission is parallel with the expansion of palm oil. Some action needs to be taken seriously in dampening the impact of this industry towards the environment and making it more sustainable while maintaining the economic viability of palm oil industry. The results also should strengthen the government action to made mandatory of MSPO certification for entire the palm oil supply chain in Malaysia.