Energy policy simulation in times of crisis: Revisiting the impact of renewable and non-renewable energy production on environmental quality in Germany

Abstract

In this paper, we examine for the first time in the literature the implications of energy policy alternatives for Germany considering the aftermath of coronavirus as well as Electricity and Gas energy supply shortages. Whilst several policy options are open to the government, the choice of investment in renewable energy generation versus disinvestment in non-renewable energy such as coal energy generation provides divergent impacts in the long term. We utilize data from British Petroleum and the World Bank Development Indicator database for Germany covering 1981 to 2020 to explore a Carbon function by applying a battery of Autoregressive distributed lag model (ARDL), dynamic ARDL and Kernel-Based Regularized Least squares approaches. The particular policy tested is the pledge by Germany to decrease emissions by ∼100% in 2050, and this was integrated through the estimation of dynamic ARDL estimation. The simulation result shows that a ＋61% shock in renewable energy production decreases carbon emissions unlike coal energy production which increases carbon emissions in the beginning but the carbon emissions decrease thereafter. The findings highlight the inevitability of cutting down on coal production, and recommends energy investment alternatives. Hence, Germany’s energy policy should contemplate more thoroughly on these factors.