Linkages Among Income, Renewable Energy Consumption and CO2Emissions and their Implications for Sustainable Development in the OECD Countries

Abstract

This study analysed the influence of income growth, energy use, and consumption of renewable energy on carbon dioxide emissions in the selected 24 OECD countries. Using balanced panel data from 1990 to 2016, the study examined the relationship of income, energy use, and consumption of renewable energy with CO2emissions. To address the issue of cross-sectional dependence stemming from unobserved common factors, given the trading relationships among these countries, we employed the cross-sectionally augmented ARDL (CS-ARDL) and cross-sectionally augmented Distributed Lag (CS-DL) models to investigate the linkages among the above variables. The study revealed a positive correlation between energy use and CO2emissions, and a negative correlation between renewable energy consumption and CO2emissions. However, the study found no evidence to support the Environmental Kuznets curve hypothesis. Energy use and renewable energy consumption were also found to be causally linked to CO2emissions based on the Dumitrescu-Hurlin non-Granger causality test. However, the inverted U-shaped relationship of income growth with CO2emissions does not exist in the sampled OECD countries. Therefore, it is not advisable for these OECD countries to be dependent on income growth for environmental sustainability. Rather, these OECD countries need to directly cut down CO2emissions through the use of clean and renewable energy sources, decreasing non-renewable energy use. Moreover, considering the Jevons’ Paradox and the ‘rebound effects’ of energy efficiency gains that may increase overall energy consumption, a comprehensive approach combining energy efficiency and renewable energy integration is essential for mitigating CO2emissions and promoting environmental sustainability in these OECD countries. JEL Classification: Q430; Q560.