Exploring the nexus between non-renewable and renewable energy consumptions and economic development: Evidence from panel estimations

Abstract

The literature on energy-growth nexus has consistently stated that economic development, which leads to environmental degradation in its early stages, is the only way to ensure environmental sustainability. The paper examines the interrelationships between the performance on sustainability indicators and economic growth in European Union. The data for sustainability indicators such as human development index, financial development index, urban population, renewable energy consumption, non-renewable energy consumption, ecological footprints, carbon emissions, and economic growth indicator that is gross domestic product are analyzed for 27 EU countries. The study employs Arellano-Bond dynamic panel data estimation, system dynamic panel data estimation, and Augmented Mean Group model. The results show a two-way positive relationship between economic growth and non-renewable energy and a two-way negative relationship between economic growth and renewable energy. Besides, ecological footprint, non-renewable energy consumption, and carbon emissions are shown to positively impact economic growth. In contrast, renewable energy consumption is shown to negatively impact economic growth. The results reveal explain the reasoning for unimpressive performance of Europe on the front of climate action, and average performance on clean energy, notwithstanding reasonable economic growth. The novelty of the study lies in finding out that the shift towards renewable energy may not seem economically viable in the short-run, but after a point of time, renewable energy consumption is bound to positively impact the economic growth in line with the Environmental Kuznets Curve.