Carbon Emissions, Energy Consumption, and Managing Investment in Renewable Energy

This paper tests the long-run role of renewables’ share in electricity production and of total energy consumption in explaining the CO2 emissions resulting from fuel combustion. As documented earlier in the literature, the energy consumption has one of the most important influences on the carbon emissions. Nevertheless, there is no agreement about the role of renewables in environmental protection. Further, the endogeneity effect between CO2 emissions on one side, and renewables and energy consumption on the other side, is practically neglected by previous empirical studies. We shed light on these questions, and we perform a panel data empirical investigation for 44 countries covering the time span of 1990–2017. Our Pooled Mean Group (PMG) estimator reveals that the energy consumption has, indeed, a long-run positive effect on CO2 emissions, whereas the role of renewables is inconclusive. This result is confirmed even in the case of a separate sample composed by 12 European Union (EU) countries. Our findings thus show that the share of renewables is still very small to generate a global downturn in CO2 emissions. Indeed, the effect of renewables is marginal and investments in this area should be encouraged to ensure environmental protection at long term.