The Impact of Foreign Direct Investment and Energy Consumption on Carbon Dioxide Emissions in Indonesia: An Inverted U-shaped Curve Approach

¹ Faculty of Economics and Business, Universitas Negeri Semarang, Semarang, Indonesia
² School of Aviation, Massey University, Palmerston North, New Zealand

^* Corresponding author: This email address is being protected from spambots. You need JavaScript enabled to view it.

Abstract

Developing countries are the main contributors to the increase in global emissions, contributing 95% of the total increase in emissions. Indonesia is one of the developing countries, where Indonesia also faces great challenges in reducing emissions. This study aims to determine the presents of an inverted U-shaped relationship between FDI and carbon dioxide (CO₂) emissions in Indonesia. This study also tries to find the impact of energy consumption on CO₂ in Indonesia. In addition, this study also uses real GDP per capita, and industrial added value to seeks their impacts on CO₂ emissions in Indonesia This study using a quantitative approach with DOLS analysis techniques with a time frame from 1990-2023. The result of this study shows that FDI has a positive effect of FDI on CO₂ emissions in the beginning and then turns reverse with a negative effect of FDI on CO₂ emissions, indicating an inverted U-shaped relationship between FDI and CO₂ emissions in Indonesia. This result indicates that recent trends in FDI in Indonesia seem to enhance, rather than degrade, environmental quality where the environmental repercussions of FDI in Indonesia are transitioning from a pollution-haven model to a more distinct pollution-halo dynamic. Meanwhile, this study also shows that energy consumption has a positive effect on CO₂, indicate the rising energy consumption in Indonesia has been confirmed to be the major driver of increasing CO₂ emissions. Consequently, Indonesia's future energy cannot rely on fossil fuels. This study is supporting the Sustainable Development Goal (SDG) 13: Climate Action.