Energy 72 (2014) 554e560

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Energy
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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
Energy shortage, climate change, and global warming have
prompted government policies to develop low-carbon economies
as well as to improve energy efciency. The expected gains from
energy efciency include the reduction of energy costs to con-
sumers and carbon dioxide emissions (CO2). Therefore, renewable
energy (RE) is becoming an increasingly important source of
alternative energies. Given the role of renewable energy in the
discussion of a reliable and sustainable energy future, it is impor-
tant to understand its main determinants and to draw result im-
plications for energy policy. While the literature focusing on non-
renewable energy consumption has grown rapidly over the last
two decades (e.g., [23e26]), studies on renewable energy con-
sumption have only been conducted recently and are still scarce
(e.g. [19] and references therein).
In its 2009 International Energy Outlook report, the US Energy
Information Administration (EIA) stated that renewables are the
fastest growing source of world energy with consumption
increasing by 3.0 percent per year.1 The increased attention on
renewable energy sources can be attributed to a number of factors.
* Corresponding author. Tel.: 216 97 914 294.
E-mail addresses: omrianis.fsegm@gmail.com, omrianis.fsegs@gmail.com
(A. Omri), duc.nguyen@ipag.fr (D.K. Nguyen).
1
Chapter 1 World Energy Demand and Economic Outlook, in the 2009 Inter-
national Energy Outlook, available at www.eia.doe.gov/oiaf/ieo/world.html.
The recent concerns over the volatility of crude oil price, the de-
pendency on foreign energy sources, and the environmental con-
sequences of carbon emissions are all contributing factors to the
increasing interest in renewable energy sources. Moreover, the
implementation of government policies such as renewable energy
production tax credits, installation rebates for renewable energy
systems, renewable energy portfolio standards, and establishment
of markets for renewable energy certicates have been critical in
promoting renewable energy as available component of energy
portfolio for various countries [8]. The development of renewable
energy sector will not only help to avoid the harmful environ-
mental effects of the current energy consumption which mainly
relies on fossil fuel energy sources and cause pollutant emissions
and climate change, but also promote sustainable development
objectives and reduce the dependency on foreign energy imports
[15,27].
Given the above discussions, a deeper understanding of the
determinants of renewable energy consumption is of great
importance, at least for the following reasons. Foremost, the
increased concern over the issues related to energy security,
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-
jected to be the fastest growing energy source between now and
2030. It is estimated that world renewable energy consumption for
electricity generation will grow by an average rate of 2.6% per year
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
world electricity generation will grow by 5% during the same
period, i.e., from 18% in 2007 to 23% in 2035.
The search for the determinants of renewable energy con-
sumption has recently been carried out (e.g., [1e3,28,29,35]). For
instance, Sadorsky [28] uses panel cointegration techniques to
investigate the determinants of renewable energy in the G7
countries and shows that per capita GDP and per capita CO2
emissions have positive impacts on per capita renewable energy
consumption in the long-run, while oil price increase has a smaller
negative impact. Using a similar approach, Sadorsky [29] explores
the links between renewable energy consumption and income for a
panel of emerging countries. The author assesses that increased
economic growth and demand for energy in these countries are
creating an opportunity for them to increase their usage of
renewable energy, even though their actual demand for renewable
energy is low. In terms of empirical results, Sadorsky [29] shows
that increases in real per capita income affect signicantly and
positively per capita renewable energy consumption, meaning that
higher economic growth would require more renewable energy as
a share of the total energy consumption. In particular, a 1% increase
in real per capita income over the long-run increases the con-
sumption of per capita renewable energy in emerging economies
by approximately 3.5%.
Apergis and Payne [1,2] also analyze the relationships between
renewable energy consumption and economic growth for the
OECD countries over the period 1985e2005. They nd, from a
heterogeneous panel cointegration techniques, evidence of a
positive and signicant long-run equilibrium relationship between
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-
sumption and economic growth in both the short- and long-run.
In a more recent research, Salim and Raq [35] examine the de-
terminants of renewable energy consumption for a panel of six
major emerging countries, namely Brazil, China, India, Indonesia,
Philippines and Turkey. Using several econometric techniques
such as the fully modied ordinary least square, the dynamic or-
dinary least square, and the Granger-causality test, they nd that,
in the long-run, renewable energy consumption is signicantly
determined by income and pollutant emissions in Brazil, China,
India, and Indonesia, but only by income in Philippines and
Turkey.
Overall, past related studies underline that identifying the
determinants of renewable energy consumption in developing
countries is crucial to support any policy decisions to accelerate
the adoption of renewable energy technology. This study at-
tempts to contribute to the aforementioned literature by inves-
tigating the impact of CO2 emissions, crude oil price, economic
growth, and trade openness on renewable energy consumption.
We focus on a relatively large panel of 64 countries around the
world. Unlike previous works that often make use of panel unit
root tests and panel cointegration, we rather estimate these re-
lationships on the basis of a dynamic panel data model using the
system generalized method of moments. This approach allows
one to solve three main problems in panel data estimations: (i)
the endogeneity problem (i.e., some regressor may be correlated
with the error terms of the model); (ii) the time-invariant
country characteristics or xed effects (i.e., the rst differences
of the instrumental variables are correlated with the error
terms); and (iii) the presence of the lagged dependent variable.
Since all the variables in a growth form are stationary, our
approach in this study enables us to estimate the short-run
elasticities and not the long-run elasticities of renewable en-
ergy consumption to changes in exogenous variables. We also
examine these interactions for three homogenous groups of
555
countries, constructed on the basis of the income level of sample
countries: high-, middle-, and low-income subpanels. This
investigation thus allows us to uncover the group-specic fea-
tures in terms of the impact that candidate factors have on
renewable energy consumption.
Note that none of the previous studies has introduced CO2
emissions, oil price, and economic growth in their growth form. In
this study, we also consider the role of trade openness in explaining
the evolution of renewable energy consumption. The rationale
behind the inclusion of this factor into the model is that trade
openness facilitates the movement and 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 involves the effective use of en-
ergy, trade openness may exert signicant impacts on total energy
demand including renewable energy through increasing domestic
production and economic activities.
Our results for a global panel of 64 countries as well as the three
homogenous subpanels of high-, middle-, and low-income coun-
tries indicate that the increases in per capita CO2 emissions and
trade openness are the major drivers of renewable energy con-
sumption. On the other hand, oil price increases have a smaller but
negative impact on renewable energy consumption in the middle-
income and global panels.
The remainder of this article is organized as follows. Section 2
presents the econometric method. Section 3 reports the data and
the obtained results. Section 4 concludes the article and draws
some policy implications.
2. Econometric method
2.1. Economic motivations
The objective of this study is to investigate whether CO2 emis-
sions, crude oil price, economic growth, and trade openness are the
drivers of renewable energy consumption. Our approach relies on a
dynamic panel data model which corrects the endogeneity prob-
lem, country's xed effects and the presence of lagged dependent
variable. Unlike Sadorsky [28,29] and Salim and Raq [35], we
select the variables to include in the system based on the economic
theory and available empirical evidence.
First, as stressed by the Intergovernmental Panel on Climate
Change (IPCC) in its 2007 report on climate change, carbon dioxide
is the most important component of the greenhouse gases (GHG)
emitted by human activities as it actually accounts for about 77% of
all GHG emissions at the global level.2 In addition, the IPCC points
out that 75% of the CO2 emissions come from the use of fossil fuels
in energy production, transport, industrial processes and land-use
changes. Given the societal concern over the greenhouse gas
2
The harmful effects of climate change and environmental degradation on hu-
man life and economic activities have urged the international community to adopt
coordinated actions and policies. In this context, the United Nation Framework on
Climate Change (UNFCC) was adopted on December 11, 1997 in Kyoto and came into
force on February 16, 2005, and aimed at ghting the global warming and the
deterioration of environmental quality by setting internationally binding GHG
emission reduction targets and thereby encouraging the clean development
mechanisms. The six GHG under consideration are translated into CO2 equivalents
to determine reductions in emissions. Following the Kyoto Protocol, the right to
emit a certain amount of CO2 has become a trading commodity because companies
are forced to hold a certain amount of allowances in proportion to their carbon
output. It is important to note that during the rst commitment period
(2008e2012), 37 industrialized countries and the European Community committed
to reduce GHG emissions to an average of ve percent against 1990 levels. Parties of
the amended Kyoto Protocol committed to reduce GHG emissions by at least 18%
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
modeling framework as an important explanatory variable for the
level of renewable energy consumption. The obtained results have
important implications for economic growth and the environment
policies because fast economic growth may produce carbon emis-
sions without policies that encourage the development and use of
renewable energy. As stated earlier in the introduction, some
studies have examined this issue (e.g., [20,28,35]). These studies
generally nd evidence of a positive impact running from CO2
emissions to renewable energy consumption. A potential explana-
tion is that a high level of CO2 emissions gives rise to the demand
for environment protection and encourages the development and
use of alternative renewable energies which are carbon emission
free. On the contrary, the decrease in the CO2 emissions would lead
to lower the demand for renewable energy and thus its
consumption.
Second, renewable energy is considered to be a substitute and a
complement for crude oil and oil rened products in both the
production of other energy sources and consumption. It is thus
expected that rising oil price should incite businesses and house-
holds to reduce their oil consumption, purchase more energy-
efcient products and even switch to renewable energy sources.3
This theoretical prediction implies a negative relationship be-
tween renewable energy consumption and oil price. A number of
works have used crude oil price to estimate and forecast energy
demand. For example, Majumdar and Parikh [18] use crude oil price
and population to model the demand for energy in India. Silk and
Joust [34] also use these variables to model residential energy de-
mand in the United States. Looking at the investment climate for
publicly traded alternative energy companies, Henriques and
Sadorsky [11] nd that stock prices of alternative energy companies
respond more to a shock to technology stock prices (or a technology
index) than to oil price. Sadorsky [28] and Salim and Raq [35] nd
that oil price has some explanatory power on renewable energy
demand.4
Third, trade openness can favor the exchange of renewable
technologies through technology transfer, and thereby promotes
the use of renewable energy, which in turn diminishes CO2
emissions. The rationale behind the inclusion of this factor into
the model is that trade openness facilitates the movement and
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
involves the effective use of energy, trade openness may exert
signicant impacts on total energy demand including renewable
energy through increasing domestic production and economic
activities. In the meanwhile, the increase in economic growth
through trade openness also provides rooms for better environ-
mental policies and regulations. Even though, the relationship
between trade openness and energy consumption has been
investigated in recent years (e.g., [16,17,22,30,31]), none of
existing studies has linked trade openness to renewable energy
consumption. For example, Sadorsky [30] examines the link be-
tween trade and energy consumption for eight Middle East
countries and nds evidence of a unidirectional causality from
exports to energy consumption, and a bidirectional causality
between imports and energy consumption in the short-run. Over
3
See, the Economic Report of the President of the United States (2006).
4
As oil or products derived from oil are considered to be the most likely sub-
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
and increase the demand for renewable energy, implying a negative relationship
between the demand for renewable energy and its substitute [35].
the long-run, an increase in both exports and imports is found to
affect the demand of energy. The study by Sadorsky [31] also
points to the existence of a long-run relationship between trade
and energy consumption for a sample of South American
countries.
Finally, as it now becomes standard in energy consumption
models, economic growth enters the system as an economic con-
traint. Indeed, while economic growth, energy consumption and
environmental quality are likely to be mutually consistent over the
long-run, they are viewed, at least over the short and medium run,
as being in conicting objectives. The reason is that an increase in
economic growth may require more energy consumption and
probably decrease the environmental quality. Accordingly, the high
economic growth should lead to a high level of energy renewable
consumption under pressure of increasing environmental degra-
dation and climate change. Previous studies including, among
others, Refs. [4,20,28,29,35,38] mainly nd that the economic
growth is an important determinant of renewable energy
consumption.
2.2. Empirical model and estimation procedure
Taking the above discussions into account, we develop, in this
study, an empirical model that is consistent with the broader
literature on the determinants of renewable energy consumption. It
takes the following form:
RE f CO2 ; ROP; Y; TO (1)
where RE represents the renewable energy consumption and it is a
function of four variables including CO2 emissions (CO2), real oil
price (ROP), per capita GDP (Y), and trade openness (TO).
Eq. (1) can be rewritten in a growth form with a time series
specication as follows:
gREt a0 a1 gCO2t a2 gROPt a3 gYt a4 TOt t (2)
Since our empirical analysis involves a panel of countries, Eq. (2)
can be written in a panel data form as:
gREi;t a0 a1 gCO2i;t a2 gROPi;t a3 gYi;t a4 TOi;t i;t (3)
where the subscript i (i 1, , N) denotes the country i in our
sample, with N being equal to 64. t (t 1, , T) indicates the time
period. gRE indicates the growth rate of total renewable energy
consumption dened in billions of kilowatt hours (KW-H), which is
composed of net geothermal, solar, wind and wood and waste
electric power consumption. gCO2 represents the growth rate of per
capita CO2 emissions in metric tons. gROP represents the growth
rate of real oil price. gY represents growth rate of per capita GDP. TO
represents the trade openness, measured as exports plus imports as
a percentage of GDP.
We use the generalised method of moments (GMM) to esti-
mate our dynamic panel data model which also allows for the
lagged level of the renewable energy consumption. This method
uses a set of instrumental variables to solve the endogeneity
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
available lags in difference of the endogenous variables and the
strictly exogenous regressors [5]. The system-GMM estimator,
which is used in our study, includes not only the previous in-
struments but also the lagged values of the dependent variable
[6].
 A. Omri, D.K. Nguyen / Energy 72 (2014) 554e560
The system-GMM is advantageous in that it helps solve the
endogeneity problem arising from the potential correlation be-
tween the independent variable and the error term in dynamic
panel data models [37]. It also permits to deal with omitted dy-
namics in static panel data models, owing to the ignorance of the
impacts of lagged values of the dependent variable [7].
Accordingly, our empirical model to be estimated can be
rewritten as follows:
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 ;
j1 (4)
i 1; ; 64; t 1990; ; 2011
where gREi;t stands for the growth rate of the country i's renewable
energy consumption at time t. a0 is the parameter to be estimated.
X is a vector of core explanatory variables used to model renewable
energy consumption. They include the CO2 emissions, oil price, per
capita GDP, and trade openness. m is the country-specic effects. is
the error term.
3. Data and results
3.1. Data
As in Likewise Refs. [28,29,35], the variables used in this study
are chosen in accordance with economic theory and data avail-
ability. They include renewable energy consumption (in billions of
kilowatt hours is measured as net geothermal, solar, wind and
wood and waste electric power consumption), per capita CO2
emissions (in metric tons), oil price (measured using the spot price
on West Texas Intermediate (WTI) crude oil), per capita GDP
(constant 2005 US$), and trade openness (measured as exports plus
imports as a percentage of GDP). Renewable energy consumption is
obtained from the U.S. Energy Information Administration [14].
Following Refs. [1,2,21,28,29], the composite variable of renewable
energy consumption includes net geothermal, solar, wind, wood
and waste electric power consumption.5 Data on CO2 emissions, oil
prices, and oil consumption are sourced from the British Petroleum
Statistical Review of World Energy [9]. Real GDP and trade open-
ness are taken from the Word Bank's World Development In-
dicators [36].
Data are collected for the period 1990e2011. Renewable energy
consumption, per capita CO2 emissions, and per capita GDP are
measured in the growth form as they are not stationary in levels.
Trade openness is stationary its level form, and therefore no
transformation is required.
The sample countries and the study period are selected on the
basis of data availability. The sample countries are divided into
three groups: (1) high-income group consisting of 26 countries
(Australia, Belgium, Canada, Cyprus, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Korea,
Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland, United Kingdom, and United States);
(2) middle-income group consisting of 26 countries (Albania,
Algeria, Argentina, Botswana, Brazil, Bulgaria, Chile, China,
Colombia, Egypt, Hungary, the Islamic Republic of Iran, Jamaica,
Malaysia, Mexico, Morocco, Panama, Peru, Philippines, Sri Lanka,
the Syrian Arab Republic, Thailand, Tunisia, Turkey, Uruguay, and
Venezuela); and (3) low-income group consisting of 12 countries
5
Since some countries do not have access to hydroelectricity, this form of
renewable energy is not included in order to keep the homogeneity of the data set
across all sample countries.
557
(Bangladesh, Cameroon, the Democratic Republic of Congo, Ghana,
India, Indonesia, Kenya, Mozambique, Nigeria, Pakistan, Vietnam,
and Zambia).6
3.2. Main results
We start our analysis by performing the panel unit root test
proposed by Im et al. [12]. Our objective is to decide which variables
variables should be in their level form. We summarize the results of
the unit root test in Table 1 for the four panels under consideration:
global panel, and high-, middle-, low-income panels. We see that
the null hypothesis of a unit root is rejected only for trade openness.
This means that this variable is stationary and can enter the
empirical model without being transformed into growth form.
Inversely, the null hypothesis of the panel unit root cannot be
rejected for the remaining variables (renewable energy consump-
tion, per capita CO2 emissions, oil price, and per capita GDP), sug-
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
empirical model linking the renewable energy consumption to its
potential determinants for all the four panels. Table 2 presents the
estimation results.
Regarding the panel of high-income countries, the ndings
indicate that CO2 emissions and economic growth have positive
and statistically signicant effects on renewable energy consump-
tion at the 1% and 5% levels, respectively. The coefcients magni-
tude of 0.422 and 0.199 implies that a 1% increase in the per capita
CO2 emissions and per capita GDP raises the per capita renewable
energy consumption of high-income countries by 0.42% and 0.2%,
respectively. The renewable energy consumption is less elastic to
economic growth than to CO2 emissions. With respect to this global
panel of countries, the effects of oil price and trade openness on
renewable energy consumption are insignicant. The absence of
signicant impacts from oil price can be potentially explained by
the fact that high-income countries have a diversied portfolios of
alternative sources of energy and that they can effectively hedge
the uctuations in oil prices.
Regarding the middle-income panel, the ndings indicate that
CO2 emissions signicantly cause changes in the renewable energy
consumption at the 5% level. Effectively, a 1% increase in the per
capita CO2 emissions leads to increase the renewable energy
consumption by around 0.27%. This result is somewhat consistent
with the ndings of Sadorsky [28] and Salim and Raq [35] who
consider a smaller sample than ours. We also see that per capita
GDP and trade openness have positive and statistically signicant
effects on renewable energy consumption at the 1% and 5% levels,
respectively. Specically, a 1% increase in the per capita GDP and
trade openness increases the renewable energy consumption of
the middle-income countries by around 0.17% and 0.25%, respec-
tively. Renewable energy consumption is also affected negatively
and signicantly by oil price as a 1% increase in oil price decreases
the renewable energy consumption by around 0.34%. Sadorsky
[28] and found similar results when analyzing these linkages for
the G7 countries and for a panel of six major emerging economies,
respectively. In addition, according to Ref. [28]; the negative
relationship between oil price and the demand of renewable en-
ergy may be due to relative short sample period being studied or
6
Following the World Bank denition for classication based on GNI in 2000,
countries are classied as low income if GNI is lower than $826, as middle-income
countries if $826  GNI$10,065, and as high-income countries if GNI is greater
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-
term movements in renewable energy consumption in these
countries.
For the low-income panel, the ndings reveal that CO2 emis-
sions and trade openness have a positive and statistically sig-
nicant impact on renewable energy consumption at the 5% level.
A 1% increase in the per capita CO2 emissions raises the per capita
renewable energy consumption of the low-income countries by
around 0.30%, while a 1% increases in the trade openness drives
up the per capital renewable energy consumption by around
0.19%. These results suggest that an increase in the environmental
degradation and in the trade openness leads to increase renew-
able energy consumption. Similar conclusions have been docu-
mented in Refs. [20,28,35] for various samples of countries. The
impacts of the per capita GDP and oil price on renewable energy
consumption are statistically insignicant. The lack of capacity to
develop renewable energy sources seems to be a potential
explanation for the inelasticity of renewable energy consumption
to changes in economic growth and oil price for these low-
income countries.
The results for the global panels are very similar to those for the
middle-income and low-income panels. Indeed, the empirical ev-
idence reveals that both per capita CO2 emissions and trade
openness have positive and signicant impacts on renewable en-
ergy consumption at the 5% level. Typically, a 1% increase in the per
capita CO2 emissions raises the per capita renewable energy con-
sumption of the global panel by around 0.20%, while a 1% increase
in trade openness increases the per capital renewable energy
consumption by around 0.32%. Similar to the case of middle-
income panel, oil prices have a statistically signicant and nega-
tive impact on renewable energy consumption, but only at the 10%
level. The oil impact is also smaller in magnitude than that from
carbon emissions and trade openness as a 1% increase in oil price
only decreases the renewable energy consumption by 0.16%. Real
oil price does not seem to have very strong impact on renewable
energy consumption and this could be due to the fact that real oil
prices were falling sharply during the estimation period [28]. It can
also be seen that the changes in per capita GDP do not signicantly
affect the renewable energy consumption.
Table 3 summarizes the results we presented in Section 3 in
order to make the comparison easier. First, our results clearly show
that the impact of environmental degradation is statistically sig-
nicant for all the four panels. A high level of CO2 emissions thus
creates pressure for the environmental cleaning policy and en-
courages the use of alternative renewable energies which are CO2
emission free. This nding corroborates the results reported in
recent studies by Refs. [20] and [35].
Second, oil prices are found to exert no signicant impact on
the renewable energy consumption for the panels of high-income
and low-income countries, suggesting that they are not a signif-
icant determinant of the renewable energy consumption in those
countries. This result can be potentially explained by the high
ability of high-income countries to diversify away the oil price
risk through derivatives markets and appropriate energy con-
servation policies. As for the low-income countries which face
nancing and technological problems for the development of
renewable energies, they may use alternative cheaper energy
sources such as coal at the cost of degrading the environmental
quality. By contrast, oil prices are found to affect negatively and
signicantly the level of renewable energy consumption in the
middle-income countries and in the global panel countries at the
10% level. This result suggests that crude oil and renewable en-
ergy are complements and are not substitutes in consumption. It
means that energy users consume crude oil and renewable en-
ergy together.
Third, the changes in the per capita GDP have insignicant im-
pacts on the renewable energy consumption in the low-income and
global panels, implying that economic growth is not an important
determinant of the renewable energy consumption for the coun-
tries included in these panels. However, the impact of per capita
GDP on the renewable energy consumption is signicant for the
countries in the high- and middle-income panels. This nding
suggests that rising incomes lead to more disposable income which
can be used to develop environmental-friendly technology and
energies. In additional, individuals in the countries with high-in-
come levels have more concerns for the environment, urging the
governments to implement policies and regulations that favor the
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
Table 3
Summary of the results for all the four panels.
High-income Middle-income Low-income Global
Per capita CO2 emissions () () () ()
Oil price () () ()
Per capita GDP () () () ()
Trade openness () () () ()
Denotes statistical signicance. ()/() denotes the sign (negative or positive) of
the effect of potential determinants on the renewable energy consumption.
Finally, the trade openness is found to have a statistically sig-
nicant effect on the renewable energy consumption, except for the
countries in the high-income panel. It is admitted that the greater
trade openness could be a good policy for combating global
warming as it permits the rapid spread and exchange of green
goods, services and renewable technologies around the world.
4. Conclusion and policy implications
The attention to the determinants of renewable energy con-
sumption has increased over the last few years. This study proposes
a dynamic panel data model to estimate the impact of CO2 emis-
sions, oil price, economic growth, and trade openness on renewable
energy consumption. We draw the empirical evidence from a global
panel consisting of 64 countries as well as from three income-based
panels (high-, middle-, and low-income panels).
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
negative impact on renewable energy consumption; (iii) the
changes in the per capita GDP signicantly affect the renewable
energy consumption only in the high- and low-income countries;
and (iv) the changes in the trade openness have a statistically sig-
nicant effect on the renewable energy consumption for all the
panels with the exception of the high-income panel.
Several policy implications can be drawn from our ndings. To
the extent that the per capita CO2 emissions for the four panels lead
to a higher level of renewable energy consumption, the govern-
ments around the world can tax fossil fuels to subsidize the
development and use of renewable energies. In particular, they can
provide subsidies in the form of research and development credits,
low cost loans, and production tax credits to accelerate the growth
of renewable energy products. They can also establish new energy
efciency and carbon-ber composites industrial policy to limit
dependence on crude oil and oil rened products. This new in-
dustrial policy would increase energy efciency by using new
existing technologies to design and build ultralight vehicles and
speed the design and manufacturing of light weight materials like
carbon-ber composites, which can be used in airplanes, heavy
trucks, vehicles, and buildings. In addition, CO2 emissions can be
reduced if governments: (i) improve the industrial sector by
importing cleaner technology to attain maximum gain from inter-
national trade, i.e., the inclusion of trade openness in the general
model can mitigate emissions [10,32]; and (ii) implement effective
economic policies and nancial development that improves envi-
ronment, i.e., the reduction of CO2 emissions by redirecting the
resources to environment friendly projects [33].
We also nd that oil prices have a small and negative impact on
the renewable energy consumption in the middle-income and
global panels. This nding is indicative of the fact that renewable
energy complements, but not substitutes crude oil in consumption.
It can also be explained by the differences in the countries capacity
to diversify oil price risk and to support the cost of renewable en-
ergy development. From the theoretical point of view, rising oil
559
prices should create incentives to look for alternatives like
renewable energies, but the uncertainty is that it is just unclear
about the threshold level of oil price according to which there will
be a signicant substitution effect between crude oil and renewable
() energy.
Another important result for the high- and middle-income
countries is that the high economic growth leads to a high level
of the renewable energy consumption. It seems that people in these
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
include good monetary and scal policies, an economic landscape
free of corruption, and well functioning labor markets to sustain
economic growth and to foster technological innovations.
Finally, the nding that trade openness has a statistically sig-
nicant impact on the renewable energy consumption for all the
panels, with the exception of the high-income panel, suggests that
more trade openness with its positive impact on technology
transfer, can greatly help these countries to diffuse the adoption of
production technologies using renewable energy, while increasing
their output.
Acknowledgments
We would like to express our sincere gratitude to the editor and
the anonymous referees for their helpful comments and sugges-
tions that considerably improved the earlier versions of this paper.
Supplementary data
Supplementary data related to this article can be found at http://
dx.doi.org/10.1016/j.energy.2014.05.081.
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