Asymmetric inference of carbon neutrality and energy transition policy in Australia: The (de)merit of foreign direct investment

Abstract

The current study examines the effect caused by potential shock arising from the Australia's ‘Direct Action’ policy in renewable energy, fossil fuel energy, and foreign direct investment (FDI). Considering the Australia's stake in the energy industrial chain system (production, distribution and marketing) that is majorly fossil fuel-based (coal and gas), it can be said that Australia is occupying a strategic position in the global climate development. For effective investigation and discussion of the findings from this study, we utilized the country's national data of 1996Q1-2018Q4 with different scientific approaches (such as structural break test and short- and long run asymmetric relationships). Emphasis on the findings and discussions is based on both the short run and long inferences arising from positive and negative shocks. The result informed that economic growth and FDI are found to negatively affect environmental quality in Australia by increasing the country's carbon emissions. This observation is inherent when there are positive and negative shocks on economic growth while only a positive shock on FDI creates an environmental effect. Further into the findings is the mitigating power of Australian renewable energy sources in its economic and environmental development. This is confirmed with positive shocks to renewable energy reducing carbon emission at the level of 23 percent while the negative shock increases carbon emissions by 16 percent. The findings imply that the economic activities and FDI penetration in Australia are done in energy cum carbon intensive ground. Additionally, evidence shows that energy transition policy is vital towards the achievement of Australian climate goal of 2030 as such a negative shock on alternative energy development such as limited energy financing and reduction or discontinued clean technology subsidies should be discouraged.