Analysis of Fertilizer Raw Materials and Environmental Degradation: Using Granger Causality

This study aims to examine the relationship between fertilizer raw materials and environmental degradation using the Granger causality test. This study uses data from World Bank Commodity Prices for fertilizer raw materials in the form of price data for phosphate, potash, and natural gas in the U.S. Dollar/metric tons and environmental degradation in the form of CO2 Emissions from methane and process emissions data from British Petroleum (BP) from 1990-2021. The methods are stationarity test, cointegration test, and Granger causality test. The results of the analysis state that there is no bidirectional relationship between these variables, but there is a one-way relationship where environmental degradation affects the price of raw materials for potash and phosphate fertilizers, and the price of natural gas is affected by environmental degradation. The implication of this research is the need to apply incentives to producers and consumers of fertilizers in the use of fertilizers to improve environmental quality.


Introduction
One of the issues raised by the ill-regulated exploration of natural resources is environmental degradation [1]- [7].Environmental deterioration is one of the challenges that needs to be watched out for in the twenty-first century, according to the United Nations Environment Program (UNEP) [8].The social and economic situation will be impacted by how dirty the environment becomes.Previous studies from many nations have recorded and investigated the loss in environmental quality and its effects on economic growth [9]- [13].High CO2 emissions are linked to environmental damage through a number of agents.Particularly in the economic sector where production inputs rely on natural resources, environmental degradation can be felt directly [14]- [17].This led to the analysis of the causal link between CO2 emissions and fertilizer production inputs in the agriculture sector in the current study.[18], [19] From an agricultural standpoint, environmental degradation has certain effects [14], [20].The manufacturing and industrial sectors, for example, have an impact on the agricultural sector.The demand for fertilizer is a major driver of the agriculture sector.The majority of countries with abundant mineral resources that can be exported to other countries meet the demand for fertilizer raw materials worldwide [21].Natural gas is another essential raw element needed to create nitrogen for different kinds of fertilizers.The early 2022 natural gas trade, however, is not looking good due to the conflict between Ukraine and Russia, which sparked a cold war in Europe, and the trade conflict between the United States and China [21]- [24].In addition to raising CO2 emissions, the conflict between Ukraine and Russia also marked the start of an increase in fertilizer pricing by global fertilizer producers [25]- [28].

Natural Gas Export
There has been numerous research done on the variables affecting emissions and fertilizers.However, it solely considers ready-to-use fertilizer and excludes the fluctuating cost of fertilizer's primary components.This paper focuses on the causal connection between emissions and the cost of phosphate, natural gas, and phosphorus fertilizer raw materials.As a result, this study uses historical data to analyze the long-term causal relationship between emissions and the cost of fertilizer raw materials.This paper's structure is as follows: Section 1 explains the background, while section 2 discusses the research method.Section 3 describes the results and discussion, and 4 presents conclusions.

Research Method
The World Bank and British Petroleum (BP) provide the data for this paper.This study makes use of time series data with price variables for the world's CO2 emissions, phosphate prices, potash prices, and natural gas prices.By examining historical data, this study employs the Granger causality test methodology to identify the causal relationships between factors and their long-term effects.In order to determine whether two research variables statistically influence one another, the Granger causality test is one of the solutions [30] The Granger Causality Analysis step is to carry out the stationarity test, cointegration test and determine the optimal lag length.The initial stage is to do a cointegration test between variables on the variables in Table 1.

Results and Discussion
The unit root test is carried out by conducting the ADF test on each variable.Based on the p-value of all variables having a value below α = 5% (0.05) then H0 is accepted.This means that all research variables are stationary.All variables were subjected to a unit root test at the first difference with a significance level of α = 5%.4, this study tested using the Granger causality test.Based on the results of the Granger causality test, it was found that natural gas has an effect on CO2 emissions but does not have a two-way relationship.Natural gas affects phosphate but does not have a bi-direction relationship.The findings of this study support a number of other studies in the fast-growing sector of agricultural business.Results from a few of this research revealed signs of the impact of utilizing fertilizers, particularly pesticides [31]- [33].The application of pesticides must adhere to accepted usage guidelines.The use of more than the advised dosage will result in a number of issues that may have an impact on plant health and environmental contamination.Insecticides' active ingredients enter the soil where they can kill microbes or decomposers.Subsequently, other active ingredients are leached, and the remaining active ingredients evaporate and release into the atmosphere.Pesticides produce chemical compounds that can damage the air in addition to the soil.When dangerous substances enter the body, residues that aren't broken down cause a number of chronic ailments, including cancer, digestive issues, and heart attacks because they restrict blood vessels [34], [35].Farming practices that use fertilizers and fertilizers that are not ecologically friendly cause degradation of soil and water quality in the upstream area.This can lead to changes in paddy fields and horticulture areas, which can impact the hydrological conditions.

Conclusion
According to the analysis's findings, there is only a one-way link between these variables in which the price of natural gas influences environmental degradation and the price of phosphate.There is no bidirectional relationship between these variables.This needs to be highlighted because according to several previous studies the addition of chemicals to the soil can provide benefits and disadvantages.This needs to be properly addressed from the side of farmers as producers and society as consumers, as well as the important role of academics, policy makers, and the government in taking the role of research and policy in the agricultural sector and its impact on the environment.The study's conclusion is that incentives must be used to encourage fertilizer producers and customers to use fertilizers to enhance environmental quality.

TABLE 1 .
Research Variables Regression model to test the hypothesis of the relationship between variable X dan Y where the errors in u_1t and u_2t are not correlated.Causality analysis is carried out with a number of things that must be met, including data variable X dan Y that pass the stationarity test and cointegration test.The steps to carry out the Granger causality test are to carry out stationary tests and cointegration tests.Equation 2.3 is the stationarity test equation and equation 2.4 is the cointegration test equation.The stationarity test is used to test the stationarity of the time series data studied using Augmented Dickey-Fuller Test (ADF test).The cointegration test functions to test the conditions for the degree of stationarity of the data.
Where: X is variable X; Y is variable Y; α, β, λ, δ is coefficients; t is time; I and j is lag 1,2,3…k; and u is error.

Table 3
is a table of cointegration test results for each variable.Based on these results, it is stated that through Johansen's cointegration test, this research can be carried out using the causality test.Based on the cointegration test results stated that there is no long-term relationship between variables.Meanwhile, in the short term, all variables adjust to each other to achieve long-term balance.