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Energy 72 (2014) 554e560

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Energy
journal homepage: www.elsevier.com/locate/energy

On the determinants of renewable energy consumption: International


evidence
Anis Omri a, *, Duc Khuong Nguyen b
a
Faculty of Economics and Management of Mahdia, University of Monastir, Tunisia
b
IPAG Lab, IPAG Business School, France

a r t i c l e i n f o a b s t r a c t

Article history: Over recent years, renewable energy sources have emerged as an important component of world energy
Received 10 November 2013 consumption. Little is however known about the determinants of renewable energy consumption. This
Received in revised form article tackles this issue for a global panel consisting of 64 countries over the period 1990e2011 by using
4 May 2014
a dynamic system-GMM panel model. We also consider three homogenous subpanels which are con-
Accepted 21 May 2014
Available online 25 June 2014
structed based on the income level of sample countries (high-, middle-, and low-income subpanels). We
mainly nd that the increases in CO2 emissions and trade openness are the major drivers of renewable
energy consumption. Oil price increases have a smaller but negative impact on renewable energy con-
Keywords:
Renewable energy consumption
sumption in the middle-income and global panels. Policy implications of our results are also discussed.
Dynamic panel data 2014 Elsevier Ltd. All rights reserved.
System-GMM

1. Introduction The recent concerns over the volatility of crude oil price, the de-
pendency on foreign energy sources, and the environmental con-
Energy shortage, climate change, and global warming have sequences of carbon emissions are all contributing factors to the
prompted government policies to develop low-carbon economies increasing interest in renewable energy sources. Moreover, the
as well as to improve energy efciency. The expected gains from implementation of government policies such as renewable energy
energy efciency include the reduction of energy costs to con- production tax credits, installation rebates for renewable energy
sumers and carbon dioxide emissions (CO2). Therefore, renewable systems, renewable energy portfolio standards, and establishment
energy (RE) is becoming an increasingly important source of of markets for renewable energy certicates have been critical in
alternative energies. Given the role of renewable energy in the promoting renewable energy as available component of energy
discussion of a reliable and sustainable energy future, it is impor- portfolio for various countries [8]. The development of renewable
tant to understand its main determinants and to draw result im- energy sector will not only help to avoid the harmful environ-
plications for energy policy. While the literature focusing on non- mental effects of the current energy consumption which mainly
renewable energy consumption has grown rapidly over the last relies on fossil fuel energy sources and cause pollutant emissions
two decades (e.g., [23e26]), studies on renewable energy con- and climate change, but also promote sustainable development
sumption have only been conducted recently and are still scarce objectives and reduce the dependency on foreign energy imports
(e.g. [19] and references therein). [15,27].
In its 2009 International Energy Outlook report, the US Energy Given the above discussions, a deeper understanding of the
Information Administration (EIA) stated that renewables are the determinants of renewable energy consumption is of great
fastest growing source of world energy with consumption importance, at least for the following reasons. Foremost, the
increasing by 3.0 percent per year.1 The increased attention on increased concern over the issues related to energy security,
renewable energy sources can be attributed to a number of factors. climate change, and global warming suggests that there will be a
greater reliance on the demand of renewable energy in the near
future. According to the EIA [9] report, renewable energy is pro-
* Corresponding author. Tel.: 216 97 914 294. jected to be the fastest growing energy source between now and
E-mail addresses: omrianis.fsegm@gmail.com, omrianis.fsegs@gmail.com 2030. It is estimated that world renewable energy consumption for
(A. Omri), duc.nguyen@ipag.fr (D.K. Nguyen).
1
Chapter 1 World Energy Demand and Economic Outlook, in the 2009 Inter-
electricity generation will grow by an average rate of 2.6% per year
national Energy Outlook, available at www.eia.doe.gov/oiaf/ieo/world.html. over the period 2007e2035 [14]. As a result, the renewable share of

http://dx.doi.org/10.1016/j.energy.2014.05.081
0360-5442/ 2014 Elsevier Ltd. All rights reserved.
A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560 555

world electricity generation will grow by 5% during the same countries, constructed on the basis of the income level of sample
period, i.e., from 18% in 2007 to 23% in 2035. countries: high-, middle-, and low-income subpanels. This
The search for the determinants of renewable energy con- investigation thus allows us to uncover the group-specic fea-
sumption has recently been carried out (e.g., [1e3,28,29,35]). For tures in terms of the impact that candidate factors have on
instance, Sadorsky [28] uses panel cointegration techniques to renewable energy consumption.
investigate the determinants of renewable energy in the G7 Note that none of the previous studies has introduced CO2
countries and shows that per capita GDP and per capita CO2 emissions, oil price, and economic growth in their growth form. In
emissions have positive impacts on per capita renewable energy this study, we also consider the role of trade openness in explaining
consumption in the long-run, while oil price increase has a smaller the evolution of renewable energy consumption. The rationale
negative impact. Using a similar approach, Sadorsky [29] explores behind the inclusion of this factor into the model is that trade
the links between renewable energy consumption and income for a openness facilitates the movement and exchange of goods and
panel of emerging countries. The author assesses that increased services between countries either for consumption or production
economic growth and demand for energy in these countries are purposes. To the extent that both consumption and production of
creating an opportunity for them to increase their usage of these tradable goods and services involves the effective use of en-
renewable energy, even though their actual demand for renewable ergy, trade openness may exert signicant impacts on total energy
energy is low. In terms of empirical results, Sadorsky [29] shows demand including renewable energy through increasing domestic
that increases in real per capita income affect signicantly and production and economic activities.
positively per capita renewable energy consumption, meaning that Our results for a global panel of 64 countries as well as the three
higher economic growth would require more renewable energy as homogenous subpanels of high-, middle-, and low-income coun-
a share of the total energy consumption. In particular, a 1% increase tries indicate that the increases in per capita CO2 emissions and
in real per capita income over the long-run increases the con- trade openness are the major drivers of renewable energy con-
sumption of per capita renewable energy in emerging economies sumption. On the other hand, oil price increases have a smaller but
by approximately 3.5%. negative impact on renewable energy consumption in the middle-
Apergis and Payne [1,2] also analyze the relationships between income and global panels.
renewable energy consumption and economic growth for the The remainder of this article is organized as follows. Section 2
OECD countries over the period 1985e2005. They nd, from a presents the econometric method. Section 3 reports the data and
heterogeneous panel cointegration techniques, evidence of a the obtained results. Section 4 concludes the article and draws
positive and signicant long-run equilibrium relationship between some policy implications.
real GDP, renewable energy consumption, real gross xed capital
formation, and the labor force. Their Granger-causality test results
reveal bidirectional causality between renewable energy con- 2. Econometric method
sumption and economic growth in both the short- and long-run.
In a more recent research, Salim and Raq [35] examine the de- 2.1. Economic motivations
terminants of renewable energy consumption for a panel of six
major emerging countries, namely Brazil, China, India, Indonesia, The objective of this study is to investigate whether CO2 emis-
Philippines and Turkey. Using several econometric techniques sions, crude oil price, economic growth, and trade openness are the
such as the fully modied ordinary least square, the dynamic or- drivers of renewable energy consumption. Our approach relies on a
dinary least square, and the Granger-causality test, they nd that, dynamic panel data model which corrects the endogeneity prob-
in the long-run, renewable energy consumption is signicantly lem, country's xed effects and the presence of lagged dependent
determined by income and pollutant emissions in Brazil, China, variable. Unlike Sadorsky [28,29] and Salim and Raq [35], we
India, and Indonesia, but only by income in Philippines and select the variables to include in the system based on the economic
Turkey. theory and available empirical evidence.
Overall, past related studies underline that identifying the First, as stressed by the Intergovernmental Panel on Climate
determinants of renewable energy consumption in developing Change (IPCC) in its 2007 report on climate change, carbon dioxide
countries is crucial to support any policy decisions to accelerate is the most important component of the greenhouse gases (GHG)
the adoption of renewable energy technology. This study at- emitted by human activities as it actually accounts for about 77% of
tempts to contribute to the aforementioned literature by inves- all GHG emissions at the global level.2 In addition, the IPCC points
tigating the impact of CO2 emissions, crude oil price, economic out that 75% of the CO2 emissions come from the use of fossil fuels
growth, and trade openness on renewable energy consumption. in energy production, transport, industrial processes and land-use
We focus on a relatively large panel of 64 countries around the changes. Given the societal concern over the greenhouse gas
world. Unlike previous works that often make use of panel unit
root tests and panel cointegration, we rather estimate these re-
2
lationships on the basis of a dynamic panel data model using the The harmful effects of climate change and environmental degradation on hu-
man life and economic activities have urged the international community to adopt
system generalized method of moments. This approach allows coordinated actions and policies. In this context, the United Nation Framework on
one to solve three main problems in panel data estimations: (i) Climate Change (UNFCC) was adopted on December 11, 1997 in Kyoto and came into
the endogeneity problem (i.e., some regressor may be correlated force on February 16, 2005, and aimed at ghting the global warming and the
with the error terms of the model); (ii) the time-invariant deterioration of environmental quality by setting internationally binding GHG
emission reduction targets and thereby encouraging the clean development
country characteristics or xed effects (i.e., the rst differences
mechanisms. The six GHG under consideration are translated into CO2 equivalents
of the instrumental variables are correlated with the error to determine reductions in emissions. Following the Kyoto Protocol, the right to
terms); and (iii) the presence of the lagged dependent variable. emit a certain amount of CO2 has become a trading commodity because companies
Since all the variables in a growth form are stationary, our are forced to hold a certain amount of allowances in proportion to their carbon
approach in this study enables us to estimate the short-run output. It is important to note that during the rst commitment period
(2008e2012), 37 industrialized countries and the European Community committed
elasticities and not the long-run elasticities of renewable en- to reduce GHG emissions to an average of ve percent against 1990 levels. Parties of
ergy consumption to changes in exogenous variables. We also the amended Kyoto Protocol committed to reduce GHG emissions by at least 18%
examine these interactions for three homogenous groups of below 1990 levels over the second commitment period from 2013 to 2020.
556 A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560

effects, per capita CO2 emissions are included in our dynamic the long-run, an increase in both exports and imports is found to
modeling framework as an important explanatory variable for the affect the demand of energy. The study by Sadorsky [31] also
level of renewable energy consumption. The obtained results have points to the existence of a long-run relationship between trade
important implications for economic growth and the environment and energy consumption for a sample of South American
policies because fast economic growth may produce carbon emis- countries.
sions without policies that encourage the development and use of Finally, as it now becomes standard in energy consumption
renewable energy. As stated earlier in the introduction, some models, economic growth enters the system as an economic con-
studies have examined this issue (e.g., [20,28,35]). These studies traint. Indeed, while economic growth, energy consumption and
generally nd evidence of a positive impact running from CO2 environmental quality are likely to be mutually consistent over the
emissions to renewable energy consumption. A potential explana- long-run, they are viewed, at least over the short and medium run,
tion is that a high level of CO2 emissions gives rise to the demand as being in conicting objectives. The reason is that an increase in
for environment protection and encourages the development and economic growth may require more energy consumption and
use of alternative renewable energies which are carbon emission probably decrease the environmental quality. Accordingly, the high
free. On the contrary, the decrease in the CO2 emissions would lead economic growth should lead to a high level of energy renewable
to lower the demand for renewable energy and thus its consumption under pressure of increasing environmental degra-
consumption. dation and climate change. Previous studies including, among
Second, renewable energy is considered to be a substitute and a others, Refs. [4,20,28,29,35,38] mainly nd that the economic
complement for crude oil and oil rened products in both the growth is an important determinant of renewable energy
production of other energy sources and consumption. It is thus consumption.
expected that rising oil price should incite businesses and house-
holds to reduce their oil consumption, purchase more energy- 2.2. Empirical model and estimation procedure
efcient products and even switch to renewable energy sources.3
This theoretical prediction implies a negative relationship be- Taking the above discussions into account, we develop, in this
tween renewable energy consumption and oil price. A number of study, an empirical model that is consistent with the broader
works have used crude oil price to estimate and forecast energy literature on the determinants of renewable energy consumption. It
demand. For example, Majumdar and Parikh [18] use crude oil price takes the following form:
and population to model the demand for energy in India. Silk and
Joust [34] also use these variables to model residential energy de- RE f CO2 ; ROP; Y; TO (1)
mand in the United States. Looking at the investment climate for
publicly traded alternative energy companies, Henriques and where RE represents the renewable energy consumption and it is a
Sadorsky [11] nd that stock prices of alternative energy companies function of four variables including CO2 emissions (CO2), real oil
respond more to a shock to technology stock prices (or a technology price (ROP), per capita GDP (Y), and trade openness (TO).
index) than to oil price. Sadorsky [28] and Salim and Raq [35] nd Eq. (1) can be rewritten in a growth form with a time series
that oil price has some explanatory power on renewable energy specication as follows:
demand.4
Third, trade openness can favor the exchange of renewable gREt a0 a1 gCO2t a2 gROPt a3 gYt a4 TOt t (2)
technologies through technology transfer, and thereby promotes
the use of renewable energy, which in turn diminishes CO2 Since our empirical analysis involves a panel of countries, Eq. (2)
emissions. The rationale behind the inclusion of this factor into can be written in a panel data form as:
the model is that trade openness facilitates the movement and
gREi;t a0 a1 gCO2i;t a2 gROPi;t a3 gYi;t a4 TOi;t i;t (3)
exchange of goods and services between countries either for
consumption or production purposes. To the extent that both
consumption and production of these tradable goods and services where the subscript i (i 1, , N) denotes the country i in our
involves the effective use of energy, trade openness may exert sample, with N being equal to 64. t (t 1, , T) indicates the time
signicant impacts on total energy demand including renewable period. gRE indicates the growth rate of total renewable energy
energy through increasing domestic production and economic consumption dened in billions of kilowatt hours (KW-H), which is
activities. In the meanwhile, the increase in economic growth composed of net geothermal, solar, wind and wood and waste
through trade openness also provides rooms for better environ- electric power consumption. gCO2 represents the growth rate of per
mental policies and regulations. Even though, the relationship capita CO2 emissions in metric tons. gROP represents the growth
between trade openness and energy consumption has been rate of real oil price. gY represents growth rate of per capita GDP. TO
investigated in recent years (e.g., [16,17,22,30,31]), none of represents the trade openness, measured as exports plus imports as
existing studies has linked trade openness to renewable energy a percentage of GDP.
consumption. For example, Sadorsky [30] examines the link be- We use the generalised method of moments (GMM) to esti-
tween trade and energy consumption for eight Middle East mate our dynamic panel data model which also allows for the
countries and nds evidence of a unidirectional causality from lagged level of the renewable energy consumption. This method
exports to energy consumption, and a bidirectional causality uses a set of instrumental variables to solve the endogeneity
between imports and energy consumption in the short-run. Over problem of the regressors. There are two types of GMM estima-
tors (difference and system) and they can be both alternatively
considered in their one-step and two-step versions. The set of
instruments of the difference-GMM estimator includes all the
3
See, the Economic Report of the President of the United States (2006). available lags in difference of the endogenous variables and the
4
As oil or products derived from oil are considered to be the most likely sub- strictly exogenous regressors [5]. The system-GMM estimator,
stitute for renewable energy for most of the countries, oil prices are included in the
model to proxy price of a substitute. Higher oil price should reduce its consumption
which is used in our study, includes not only the previous in-
and increase the demand for renewable energy, implying a negative relationship struments but also the lagged values of the dependent variable
between the demand for renewable energy and its substitute [35]. [6].
A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560 557

The system-GMM is advantageous in that it helps solve the (Bangladesh, Cameroon, the Democratic Republic of Congo, Ghana,
endogeneity problem arising from the potential correlation be- India, Indonesia, Kenya, Mozambique, Nigeria, Pakistan, Vietnam,
tween the independent variable and the error term in dynamic and Zambia).6
panel data models [37]. It also permits to deal with omitted dy-
namics in static panel data models, owing to the ignorance of the
3.2. Main results
impacts of lagged values of the dependent variable [7].
Accordingly, our empirical model to be estimated can be
We start our analysis by performing the panel unit root test
rewritten as follows:
proposed by Im et al. [12]. Our objective is to decide which variables
X
4 should enter the empirical model in their growth form and which
0
gREi;t a0 gREi;t1 bXi;t mi;t i;t ; variables should be in their level form. We summarize the results of
j1 (4) the unit root test in Table 1 for the four panels under consideration:
i 1; ; 64; t 1990; ; 2011 global panel, and high-, middle-, low-income panels. We see that
the null hypothesis of a unit root is rejected only for trade openness.
where gREi;t stands for the growth rate of the country i's renewable This means that this variable is stationary and can enter the
energy consumption at time t. a0 is the parameter to be estimated. empirical model without being transformed into growth form.
X is a vector of core explanatory variables used to model renewable Inversely, the null hypothesis of the panel unit root cannot be
energy consumption. They include the CO2 emissions, oil price, per rejected for the remaining variables (renewable energy consump-
capita GDP, and trade openness. m is the country-specic effects. is tion, per capita CO2 emissions, oil price, and per capita GDP), sug-
the error term. gesting that these variables are non-stationary and that they have
to be transformed into the growth form by differencing them.
We then use the system-GMM estimator to estimate the
3. Data and results empirical model linking the renewable energy consumption to its
potential determinants for all the four panels. Table 2 presents the
3.1. Data estimation results.
Regarding the panel of high-income countries, the ndings
As in Likewise Refs. [28,29,35], the variables used in this study indicate that CO2 emissions and economic growth have positive
are chosen in accordance with economic theory and data avail- and statistically signicant effects on renewable energy consump-
ability. They include renewable energy consumption (in billions of tion at the 1% and 5% levels, respectively. The coefcients magni-
kilowatt hours is measured as net geothermal, solar, wind and tude of 0.422 and 0.199 implies that a 1% increase in the per capita
wood and waste electric power consumption), per capita CO2 CO2 emissions and per capita GDP raises the per capita renewable
emissions (in metric tons), oil price (measured using the spot price energy consumption of high-income countries by 0.42% and 0.2%,
on West Texas Intermediate (WTI) crude oil), per capita GDP respectively. The renewable energy consumption is less elastic to
(constant 2005 US$), and trade openness (measured as exports plus economic growth than to CO2 emissions. With respect to this global
imports as a percentage of GDP). Renewable energy consumption is panel of countries, the effects of oil price and trade openness on
obtained from the U.S. Energy Information Administration [14]. renewable energy consumption are insignicant. The absence of
Following Refs. [1,2,21,28,29], the composite variable of renewable signicant impacts from oil price can be potentially explained by
energy consumption includes net geothermal, solar, wind, wood the fact that high-income countries have a diversied portfolios of
and waste electric power consumption.5 Data on CO2 emissions, oil alternative sources of energy and that they can effectively hedge
prices, and oil consumption are sourced from the British Petroleum the uctuations in oil prices.
Statistical Review of World Energy [9]. Real GDP and trade open- Regarding the middle-income panel, the ndings indicate that
ness are taken from the Word Bank's World Development In- CO2 emissions signicantly cause changes in the renewable energy
dicators [36]. consumption at the 5% level. Effectively, a 1% increase in the per
Data are collected for the period 1990e2011. Renewable energy capita CO2 emissions leads to increase the renewable energy
consumption, per capita CO2 emissions, and per capita GDP are consumption by around 0.27%. This result is somewhat consistent
measured in the growth form as they are not stationary in levels. with the ndings of Sadorsky [28] and Salim and Raq [35] who
Trade openness is stationary its level form, and therefore no consider a smaller sample than ours. We also see that per capita
transformation is required. GDP and trade openness have positive and statistically signicant
The sample countries and the study period are selected on the effects on renewable energy consumption at the 1% and 5% levels,
basis of data availability. The sample countries are divided into respectively. Specically, a 1% increase in the per capita GDP and
three groups: (1) high-income group consisting of 26 countries trade openness increases the renewable energy consumption of
(Australia, Belgium, Canada, Cyprus, Denmark, Finland, France, the middle-income countries by around 0.17% and 0.25%, respec-
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Korea, tively. Renewable energy consumption is also affected negatively
Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, and signicantly by oil price as a 1% increase in oil price decreases
Spain, Sweden, Switzerland, United Kingdom, and United States); the renewable energy consumption by around 0.34%. Sadorsky
(2) middle-income group consisting of 26 countries (Albania, [28] and found similar results when analyzing these linkages for
Algeria, Argentina, Botswana, Brazil, Bulgaria, Chile, China, the G7 countries and for a panel of six major emerging economies,
Colombia, Egypt, Hungary, the Islamic Republic of Iran, Jamaica, respectively. In addition, according to Ref. [28]; the negative
Malaysia, Mexico, Morocco, Panama, Peru, Philippines, Sri Lanka, relationship between oil price and the demand of renewable en-
the Syrian Arab Republic, Thailand, Tunisia, Turkey, Uruguay, and ergy may be due to relative short sample period being studied or
Venezuela); and (3) low-income group consisting of 12 countries

6
Following the World Bank denition for classication based on GNI in 2000,
5
Since some countries do not have access to hydroelectricity, this form of countries are classied as low income if GNI is lower than $826, as middle-income
renewable energy is not included in order to keep the homogeneity of the data set countries if $826  GNI$10,065, and as high-income countries if GNI is greater
across all sample countries. than $10,065.
558 A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560

Table 1
Results of the Im et al. [12] unit root test for the variables in level.

High-income Middle-income Low-income Global

Statistic Prob. Statistic Prob. Statistic Prob. Statistic Prob.

Renewable energy consumption 0.813 0.701 1.862 0.965 1.341 0.902 1.753 0.944
Per capita CO2 emissions 3.110 0.998 3.441 1.000 2.292 0.977 7.668 1.000
Oil price 1.251 0.893 1.127 0.855 1.446 0.908 1.538 0.918
Per capita GDP 7.655 1.000 8.180 1.000 6.693 1.000 6.237 1.000
Trade openness 2.641* 0.003 13.404* 0.000 10.226* 0.000 6.761* 0.000

*Statistical signicance at the 1% level.

due to peculiarities with how these variables interact with short- Table 3 summarizes the results we presented in Section 3 in
term movements in renewable energy consumption in these order to make the comparison easier. First, our results clearly show
countries. that the impact of environmental degradation is statistically sig-
For the low-income panel, the ndings reveal that CO2 emis- nicant for all the four panels. A high level of CO2 emissions thus
sions and trade openness have a positive and statistically sig- creates pressure for the environmental cleaning policy and en-
nicant impact on renewable energy consumption at the 5% level. courages the use of alternative renewable energies which are CO2
A 1% increase in the per capita CO2 emissions raises the per capita emission free. This nding corroborates the results reported in
renewable energy consumption of the low-income countries by recent studies by Refs. [20] and [35].
around 0.30%, while a 1% increases in the trade openness drives Second, oil prices are found to exert no signicant impact on
up the per capital renewable energy consumption by around the renewable energy consumption for the panels of high-income
0.19%. These results suggest that an increase in the environmental and low-income countries, suggesting that they are not a signif-
degradation and in the trade openness leads to increase renew- icant determinant of the renewable energy consumption in those
able energy consumption. Similar conclusions have been docu- countries. This result can be potentially explained by the high
mented in Refs. [20,28,35] for various samples of countries. The ability of high-income countries to diversify away the oil price
impacts of the per capita GDP and oil price on renewable energy risk through derivatives markets and appropriate energy con-
consumption are statistically insignicant. The lack of capacity to servation policies. As for the low-income countries which face
develop renewable energy sources seems to be a potential nancing and technological problems for the development of
explanation for the inelasticity of renewable energy consumption renewable energies, they may use alternative cheaper energy
to changes in economic growth and oil price for these low- sources such as coal at the cost of degrading the environmental
income countries. quality. By contrast, oil prices are found to affect negatively and
The results for the global panels are very similar to those for the signicantly the level of renewable energy consumption in the
middle-income and low-income panels. Indeed, the empirical ev- middle-income countries and in the global panel countries at the
idence reveals that both per capita CO2 emissions and trade 10% level. This result suggests that crude oil and renewable en-
openness have positive and signicant impacts on renewable en- ergy are complements and are not substitutes in consumption. It
ergy consumption at the 5% level. Typically, a 1% increase in the per means that energy users consume crude oil and renewable en-
capita CO2 emissions raises the per capita renewable energy con- ergy together.
sumption of the global panel by around 0.20%, while a 1% increase Third, the changes in the per capita GDP have insignicant im-
in trade openness increases the per capital renewable energy pacts on the renewable energy consumption in the low-income and
consumption by around 0.32%. Similar to the case of middle- global panels, implying that economic growth is not an important
income panel, oil prices have a statistically signicant and nega- determinant of the renewable energy consumption for the coun-
tive impact on renewable energy consumption, but only at the 10% tries included in these panels. However, the impact of per capita
level. The oil impact is also smaller in magnitude than that from GDP on the renewable energy consumption is signicant for the
carbon emissions and trade openness as a 1% increase in oil price countries in the high- and middle-income panels. This nding
only decreases the renewable energy consumption by 0.16%. Real suggests that rising incomes lead to more disposable income which
oil price does not seem to have very strong impact on renewable can be used to develop environmental-friendly technology and
energy consumption and this could be due to the fact that real oil energies. In additional, individuals in the countries with high-in-
prices were falling sharply during the estimation period [28]. It can come levels have more concerns for the environment, urging the
also be seen that the changes in per capita GDP do not signicantly governments to implement policies and regulations that favor the
affect the renewable energy consumption. use of renewable energy.

Table 2
Two-step sys-GMM panel estimation regression results for all four panels.

Dependent variable Renewable energy consumption

High-income Middle-income Low-income Global

Per capita CO2 emissions 0.422* (0.000) 0.265** (0.020) 0.295*** (0.061) 0.202** (0.034)
Oil price 0.103 (0.162) 0.341** (0.014) 0.091 (0.521) 0.163*** (0.052)
Per capita GDP 0.199** (0.019) 0.169*** (0.082) 0.149 (0.116) 0.055 (0.411)
Trade openness 0.144 (0.103) 0.251* (0.000) 0.189*** (0.093) 0.324** (0.012)
Constant 0.224*** (0.061) 0.395* (0.002) 0.281** (0.023) 0.348** (0.045)
Hansen J-test (p-value) 18.041 (0.172) 15.442 (0.599) 25.218 (0.094) 21.775 (0.361)
AR2 test (p-value) 0.134 (0.907) 0.139 (0.914) 0.269 (0.744) 0.139 (0.914)

Values in parenthesis are the estimated p-values. Hansen J-test refers to the over-identication test for the restrictions in GMM estimation. The AR2 test is the ArellanoeBond
test for the existence of the second-order autocorrelation in rst differences. *, **, and *** indicate signicance at the 1%, 5%, and 10% levels, respectively.
A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560 559

Table 3 prices should create incentives to look for alternatives like


Summary of the results for all the four panels. renewable energies, but the uncertainty is that it is just unclear
High-income Middle-income Low-income Global about the threshold level of oil price according to which there will
Per capita CO2 emissions () () () ()
be a signicant substitution effect between crude oil and renewable
Oil price () () () () energy.
Per capita GDP () () () () Another important result for the high- and middle-income
Trade openness () () () () countries is that the high economic growth leads to a high level
Denotes statistical signicance. ()/() denotes the sign (negative or positive) of of the renewable energy consumption. It seems that people in these
the effect of potential determinants on the renewable energy consumption. countries are mostly concerned by the degradation of the envi-
ronmental quality and urge the governments to increase the use of
renewable energy. In this context, government policies should
Finally, the trade openness is found to have a statistically sig- include good monetary and scal policies, an economic landscape
nicant effect on the renewable energy consumption, except for the free of corruption, and well functioning labor markets to sustain
countries in the high-income panel. It is admitted that the greater economic growth and to foster technological innovations.
trade openness could be a good policy for combating global Finally, the nding that trade openness has a statistically sig-
warming as it permits the rapid spread and exchange of green nicant impact on the renewable energy consumption for all the
goods, services and renewable technologies around the world. panels, with the exception of the high-income panel, suggests that
more trade openness with its positive impact on technology
4. Conclusion and policy implications transfer, can greatly help these countries to diffuse the adoption of
production technologies using renewable energy, while increasing
The attention to the determinants of renewable energy con- their output.
sumption has increased over the last few years. This study proposes
a dynamic panel data model to estimate the impact of CO2 emis- Acknowledgments
sions, oil price, economic growth, and trade openness on renewable
energy consumption. We draw the empirical evidence from a global We would like to express our sincere gratitude to the editor and
panel consisting of 64 countries as well as from three income-based the anonymous referees for their helpful comments and sugges-
panels (high-, middle-, and low-income panels). tions that considerably improved the earlier versions of this paper.
Our main ndings over the period 1990e2011 show that: (i) the
impact of environmental degradation is statistically signicant in
all the four panels we consider; (ii) oil prices have a small and Supplementary data
negative impact on renewable energy consumption; (iii) the
changes in the per capita GDP signicantly affect the renewable Supplementary data related to this article can be found at http://
energy consumption only in the high- and low-income countries; dx.doi.org/10.1016/j.energy.2014.05.081.
and (iv) the changes in the trade openness have a statistically sig-
nicant effect on the renewable energy consumption for all the References
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