Are fluctuations in Japan’s consumption of non-fossil energy permanent or transitory?

Abstract

This is the first empirical study to use annual data to probe the stationary property of non-fossil energy consumption in Japan. To understand the behavior of non-fossil energy from different sources, we adopt the univariate and panel Lagrange Multiplier unit root test, which can accommodate multiple structural breaks in data-generating processes, together with the Fourier-type Lagrange Multiplier test under a non-linear framework. Our empirical findings emphasize a difference between the stationary behavior of nuclear energy and renewable energy. Nuclear energy contains a unit root, which implies that random shocks to nuclear energy consumption, defined as regulatory change, may result in a permanent deviation from original target levels. However, renewable energy consumption series are found to be stationary, which implies that extant energy polices for such consumption could have a transitory effect. Thus, an innovation policy using effective and flexible incentive mechanisms needs to be adopted to enlarge renewable energy deployment.