Does globalization change the renewable energy consumption and CO2 emissions nexus for OECD countries? New evidence based on the nonlinear PSTR model

Abstract

Renewable energy is preferred by most countries due to its clean and sustainable characteristic especially under the background of rapid rise in carbon emissions. However, the carbon reduction effect of renewable energy has not been thoroughly investigated in the context of rapid globalization. The panel smooth transition regression (PSTR) model is utilized in this study because it allows for smooth changes of the nexus when studying the dynamic linkage of the variables. Using globalization as the transition variable, this paper employs the PSTR model to investigate the effects of renewable energy consumption (REC) on CO2 emissions in 33 OECD countries for the period between 2000 and 2018. The empirical results demonstrate the existence of a strongly nonlinear relationship between REC and CO2 emissions. Although the renewable energy is always beneficial to carbon reduction, the carbon reduction effect of renewable energy becomes stronger as globalization level increases, that is globalization changes the REC and CO2 emissions nexus for OECD countries. Also, the individual country analysis indicates that the carbon reduction effects are more significant for the countries possessing less fossil energy and more advanced technologies. Our study emphasizes the effectiveness of globalization in encouraging the development of renewable energy and improving environmental quality. Based on this study, the significance of the global cooperation in renewables market and reducing CO2 emissions should be attached for policymakers.