The Determinants of Renewable Energy Consumption: Which Factors are Most Important?

Numerous studies have been proposed in the literature to analyse the determinants of renewable energy consumption and their effects. Nevertheless, despite the various proposed methods and obtained results, nothing is known about which factors are most or least important. This paper proposes to contribute to the literature by comparing their effects and ranking them according to their importance. This additional information may be important when developing policies for energy transition. The proposed procedure is based on the estimation of a panel vector autoregressive (PVAR) model including simultaneously the commonly considered factors affecting renewable energy consumption in the literature, to be able to compare their effects. Next, impulse response functions are drawn, and variances decompositions are made to provide additional information about how renewable energy consumption responds to shocks in each of the considered factors. Empirical validation for 22 high-income countries reveals that financial development is the most important factor that can affect positively renewable energy consumption. Also, it is found that the response of renewable energy consumption to one shock in financial development is the strongest among the studied factors and lasts to the long run. The variance decompositions show that the contributions to the variation in renewable energy consumption are different from one factor to another.