Are Renewables Effective in Promoting Growth? Evidence from 21 EU Members

Abstract

The energy needs of mankind in the 19th century were essentially satisfied by the use of renewable sources, such as biomass mainly by burning wood, and animal power. Some transformation of agricultural goods was done through the exploitation of natural resources such as wind and water, using wind mills and water wheels. The 20th century was the century of high economic growth. It was a century where the use of internal combustion engines was widespread and with them the massive use of fossil fuels. The 21st century is now looking for alternative sources of energy. Nowadays, there is a backdrop of the forecast of depleting fossil fuels in the near future, particularly oil, and climate changes, associated with large emissions of carbon dioxide. In this century, there is a great focus on renewable energy sources, with the strong support of public policies. In addition to the use of hydropower, which already has mature technology, there is a continuous process of developing technologies for harnessing the wind and photovoltaic resources. The attribution of the title of energy of the future to renewable sources is dependent on two factors. First, the achievement of their own economic sustainability will depend on the evolution of technology itself. Second, it will depend on the long-term advances in atomic energy to accomplish the nuclear fusion process on Earth. One of the fundamental questions that arises is to assess whether this progressive change in the energy paradigm will affect the process of economic growth. The analysis of the relationship between energy consumption and economic growth is far from new in literature. Narayan & Smyth (2008) summarise the principal achievements, the absence of consensus and the diversity of methodologies. The study of the impact of using renewables on economic growth is, however, scarce (e.g. Apergis & Payne, 2010 & Menegaki, 2011). Furthermore, the literature has not focused on the energy mix, that is, on the impact of the simultaneous use of different energy sources on economic growth. Will the impact of energy on economic growth be identical, regardless of whether this energy comes from fossil fuels or renewable sources? The literature is not unanimous regarding the relationship between income and environmental concerns. Some authors, such as Vachon & Menz, 2006 and Huang et al., 2007, argued a positive effect of wealth on renewables. On the one hand, higher income