Asymmetric adjustment of clean energy demand in the OECD countries

Abstract

ABSTRACT This paper investigates the asymmetric demand for clean energy for a panel of OECD countries. We construct a price index for clean energy based on information on the energy composition of electricity generation, and focus on the possibility of non-symmetric clean and dirty clean consumption due to rising and falling energy prices, and to positive income growth and negative income growth. Using an Autoregressive Distributed Lag (ARDL) model that encapsulates both long-run equilibrium among energy demands, energy prices and income, and short-run dynamics. We find evidence that clean energy demand adjusts more aggressively to a price decline than a price rise. In addition, we find that clean energy consumption is more responsive to negative income changes than to positive income changes. A climate policy implication is that policy should account for reversal effect of clean energy consumption during periods of economic downturn.