Chapter Eight - The interactions between conventional and alternative energy sources in the transport sector: a panel of OECD countries

Abstract

This chapter aims to analyze the extended transport sector (TS) energy–growth nexus. To do that, the interactions between TS energy consumption, CO2 emissions, economic growth, and trade openness were examined, by subdividing the transport energy consumption into both conventional and alternative energy sources. Annual panel data from 1971 to 2015 comprising 19 EU countries were used. The existence of endogeneity makes the use of the panel-vector autoregressive suitable. Granger causality test, impulse response functions, and forecast error variance decomposition were estimated. The results suggest that there is a bidirectional causality between economic growth and both CO2 emissions and TS fossil fuels consumption. There is a unidirectional causality running from economic growth to TS renewable fuels use, and there is no relationship between TS electricity use and both economic growth and trade openness. Energy consumption in the economy, except that which is consumed by the TS as well as TS fossil fuels consumption, is contributing to CO2 emissions. Policymakers should promote changes in the TS energy paradigm, namely by incorporating alternative sources. In this sense, both TS renewable fuels and electricity must be pursued. However, this chapter did not find evidence wherein the TS alternative sources are directly contributing to reducing CO2 emission, but it found that TS renewable fuels promote the reduction of TS fossil fuels use.