Are fluctuations in coal, oil and natural gas consumption permanent or transitory? Evidence from OECD countries

Abstract

Economic development is characterised by natural resource extraction and consumption. However, due to the finite nature of fossil fuel energy sources and its price shocks, an investigation into its historical fluctuations is essential for energy policy formulation. Against the backdrop, this paper examines the stationary properties of coal, oil and natural gas consumption per capita of 16 Organisation for Economic Co-operation and Development (OECD) countries for the period 1970–2018. The study employs Fourier ADF and Fourier KSS unit root tests for linear and nonlinear series to assess the permanent or transitory shocks in coal, oil, and natural gas consumption. Empirical findings show that coal consumption is stationary for 6 of 16 countries. In contrast, oil consumption is found stationary for 4 of 16 countries while natural gas consumption is found stationary for 5 of 16 countries. These results demonstrate that any shock in oil, coal, and natural gas consumption will be permanent in most of the OECD countries. Thus, finding fossil fuel alternatives like renewable energy sources which are localized rather than internationally tradable, lessens the reliance on fossil fuel imports and the negative impacts of price shocks.