Factors influencing renewable electricity consumption in China

Abstract

Renewable energy is an important factor in achieving a low-carbon economic development path in China. This paper investigates the factors influencing renewable electricity consumption in China. Specifically, the factors that influence the share of renewable electricity in total electricity consumption in China is investigated using data from 1980 to 2011 and employing the Johansen cointegration technique and vector error correction model. The result of the analysis shows that there is a long run relationship between renewable electricity consumption and GDP per capita, trade openness, foreign direct investment, financial development and share of fossil fuel in energy consumption. Economic development and financial development promotes renewable electricity consumption while foreign direct investment, trade openness and the lobby of conventional energy sources undermine the share of renewables in total electricity consumption in China. While the effects of shocks to the other variables appear to die out over time, the “lobby effect” is persistent and explosive. The results also show that there is a uni-directional short run causality from financial development to renewable electricity consumption and from renewable electricity consumption to trade openness. The Chinese government should pursue policies that not only increase the amount of renewable electricity, but also increase the share of renewables in total electricity consumption.