Does renewable energy ensure environmental quality in favour of economic growth? Empirical evidence from China’s renewable development

Abstract

An economy in transition that is growing fast coupled with rising population requires more energy. Economic growth and greenhouse gas emissions in China have been increasing together over the past several years. Exploring the dynamic relationship among these variables has a lot of policy implications related to environment–growth–energy linkage. This paper explores the interrelationship among CO2 emissions, economic growth, disaggregated energy (fossil fuel and renewable) consumption and population. The broad objective of the paper is to examine the potential role of renewable energy consumption to ensure environmental quality in favour of growth. Data spanned from 1971 to 2013 sourced from World Bank data base. The results from auto regression distributed lag suggests that fossil fuel energy consumption increases CO2 emissions, both in the short and the long run, but renewable energy consumption reduces CO2 emissions in the long run. Although economic growth and population increase CO2 emissions in the short run, their impacts on CO2 emissions in the long run diminish, validating the environmental carbon Kuznets curve hypothesis in China. Short run vector error correction mechanism Granger causality results reveal unidirectional causality from both fossil fuel and renewable energy consumption to CO2 emissions revealing growth hypothesis. Bidirectional causality exists between both energies and economic growth confirming the role of energy on economic expansion vis-a-vis the role of income on energy consumption. The findings have important policy implications for harmonizing economic growth vis-a-vis environmental quality and thus climate change mitigation with a higher proportion of energy from renewables.