A contingent approach to energy mix policy

Abstract

Prior work has suggested that cultivating environmentally friendly energy sources can strike a balance between reducing CO2 emissions and fostering economic growth, yet little is known about whether and how energy-mix policies tap into the balance. Energy-mix is important mainly because maintaining energy supplies exclusively using renewable energy sources is not completely feasible. Our study takes a contingent approach to energy mix policies and suggests that the appropriate mix for reducing carbon emissions is not static but dynamic depending on the developmental stages of national economic systems. We follow the Environmental Kuznets Curve (EKC) hypothesis, the most influential model for relating CO2 emissions to economic development, but depart from it by utilizing multifactor productivity data, rather than the conventional measure of GDP per capita, to capture economic growth. Empirical analyses of OECD countries from 1985 to 2013 show that the best energy policies for OECD countries is the gradual decrease in their relative reliance on natural gas, nuclear power, bio and waste fuels in a short run, over the next about 9, 2 and 5 years respectively, whereas solar and wind power can decrease CO2 in a long run as the economy continues to grow.