Environmental implications of economic complexity and its role in determining how renewable energies affect CO2 emissions

Abstract

The economic complexity index's environmental implications have been thoroughly investigated in this study. In particular, an effort is made to determine the index's utility in explaining and filling in the gaps left by experimental studies on the effects of renewable energy on CO2 emissions. The study sampled 29 Asia-Pacific countries over the period 2000–2018. The relationship between the complexity index and CO2 emissions has been investigated using panel data models and estimation methods. According to the findings, increasing the intensity of energy use, trade openness, and urbanization all increase CO2 emissions, although the effects of urbanization eventually became insignificant in the long run. Furthermore, while the logarithm of GDP per capita’s coefficients for the level and squared forms confirmed the Environmental Kuznets Curve (EKC) hypothesis, the economic complexity index shifted the curve. The results indicate that economic complexity in countries enhances economic growth effects to increase CO2 emissions through increased production scale and energy demand. On the other hand, increasing economic complexity through increased energy efficiency demonstrates its beneficial effects on the environment. According to the findings, increasing wind and solar energy share has reduced CO2 emissions in countries with lower economic complexity. In comparison, in more complex countries along with these substitution effects, there is also a scale effect associated with increasing renewable energy use, which eventually results in increased CO2 emissions.