The negative effects of energy consumption and pollution have restrained Chinese economy from further rapid sustainable growth. Examining their relationship with economic growth can lay a solid foundation for the decision–making of energy conservation and pollution reduction and ensure the sustainable development of Chinese economy. Using panel data of 30 Chinese provinces from 2001 to 2008, this paper builds a comprehensive model of pollution, energy consumption and economic growth and conducts an empirical study on the interactions between pollution, energy consumption and average GDP. The estimated results show that energy consumption has a greater impact on output compared with conventional factors of production such as labour (human capital) because energy consumption has higher output elasticity than labour. Pollution has relatively little effect on output, which means that China's economic growth is still powered by physical capital expansion and substantial energy consumption. Energy consumption and pollution still increase with China's economic growth and the EKC hypothesis is only partially confirmed.
Keywords: energy consumption, environment pollution, economic growth, simultaneous equations, China, pollution emissions, energy conservation, modelling