Assessing the Impact of Fossil Fuel Prices on Renewable Energy in China Using the Novel Dynamic ARDL Simulations Approach

Abstract

The past few decades have been marked by a gradual but steady increase in the reliance on renewable energy. In this study, we examined whether the prices of fossil fuels, namely, oil, coal, and natural gas, have affected renewable energy consumption in China during the period 1980–2018. To this end, we employed the novel dynamic Autoregressive Distributed Lag simulations approach. In the light of the empirical investigation, some intriguing conclusions have been drawn. We found strong evidence of the cointegrating relationship between the prices of all fossil fuels and renewable energy consumption. Furthermore, rising oil, coal, and natural gas prices resulted in increased renewable energy consumption in the long run, confirming that renewable energy sources can substitute fossil fuel energy only in the long run. Nevertheless, there is no evidence of significant effects in the short run. When considering the presence of structural breaks, the findings confirm the robustness of the dynamic ARDL simulations, as we conclude that fossil fuel prices positively affect renewable energy consumption only in the long run.