Determinants of renewable energy consumption: Importance of democratic institutions

Abstract

There has been an increase in the use of renewable energy sources over recent years, which has led to a strand of literature examining the determinants of renewable energy consumption. However, most of the research used linear estimation models while reviewing the determinants of renewable energy consumption and ignored the indirect effect of democratic institutions on renewable energy consumption. With the use of a panel threshold model, this paper demonstrates that democratic institutions play a significant role in renewable energy consumption. In countries in which the democratic rights of people are preserved better, higher economic growth leads to increased use of renewable energy consumption; however, there is a negative association between economic growth and renewable energy consumption in less democratic countries. Increased trade openness leads to lower growth rates of renewable energy consumption in less democratic countries, while increases in real oil prices lead to increased renewable energy consumption in less democratic countries but play no significant role in more democratic countries. The findings of this paper suggest that democratic institutions are vital in channelling economic resources (economic growth) to renewable energy, and increased trade openness is associated with lower rates of renewable energy deployment in less democratic countries.