Does environmental policy matter for renewable energy production and economic activity? Evidence from Granger causality in quantiles

Abstract

The rapid development of renewable energy and the increasing significance of environmental policy have spurred scholarly interest in their economic and environmental implications. The present research extends existing literature beyond previous energy–growth debates by analyzing the causal linkages among environmental policy, renewable energy, and economic activity in the United States from January 1990 to March 2019 using Granger causality in quantiles analysis. Unlike the results obtained from the mean-based approach, which suggest mutual Granger causality among all variables, our quantile estimation reveals that not every variable causes each other and the causalities vary across quartiles. Our findings indicate that moderate strengthening of environmental policy significantly contributes to renewable energy development. We also find that the substantial improvement in environmental policy significantly contributes to industrial activity in the United States. These findings underscore the importance of government attention to the development of more active environmental policies to realize sustainable development.