Renewable Energy, Urbanization, and CO2 Emissions: A Global Test

Abstract

A fixed effects regression and two-step system generalized method of moments (GMM) is used to analyze secondary data from the World Bank, covering 163 countries over the period from 2000 to 2016. The study tests the relationship between renewable energy, urbanization, and CO2 emissions. The empirical results show that urbanization has an inverted U-shaped relationship with CO2 emissions, while renewable energy consumption mitigates CO2 emissions. If causal, a 1% increase in renewable energy use leads to a 1.2% decrease in CO2 emissions. The results also show that the GDP per capita has an inverted U-shaped relationship with CO2 emissions, confirming the environmental Kuznets curve (EKC). We also found that innovation, proxied by residents’ patents, has a non-linear effect on CO2 emissions. As a policy implication, developing countries should increase the share of renewable energy in their total energy use, and promote innovative activities by increasing government spending on R&D.