Impact of Renewable Energy on Economic Growth and CO2 Emissions—Evidence from BRICS Countries

Qinghua Fu,Susana Álvarez-Otero,Judit Oláh,Muhammad Safdar Sial,Ubaldo Comite,Sarminah Samad,Pengfei Zheng

doi:10.3390/pr9081281

Abstract

The global focus on the use of renewable energy resources was mainly reignited by the signing of the Kyoto Protocol Agreement in 1997. Since then, the world has seen a great deal of progress in terms of the production and consumption of renewable energy. This in turn is rapidly powering economic growth and social development around the globe. Contrary to popular belief, the use of renewable energy is not limited to developed countries only. The developing countries are also rapidly endorsing renewable energy as a vital engine of economic growth and societal development. In this regard, even though renewable energy production and consumption are in their infancy in BRICS, these countries are taking concrete steps towards the development of renewable energy resources. The results of previous studies have indicated that with an increase in the GDP of a country its carbon footprint also tends to increase; the Brazil, Russia, India, China, and South Africa (BRICS) countries are no exception in this regard. One of the main challenges in research related to measuring the contribution of renewable energy towards economic growth is the use of a singular model or techniques that may not be appropriate for the generalization of the results. This study intends to overcome this challenge by application of multiple econometric-based models which include the “Cross Dependency” test, the unit root test, and “CIPS” (cross-sectional augmented IPS). Besides these the second generation, stochastic models based upon econometrics, such as the DOLS test (dynamic ordinary least square) and the FMOLS (fully modified ordinary least square) are also applied for verification of the contribution of renewable energy towards the economic growth of the BRICS countries. The novelty of the study mainly stems from fact that these models are seldom applied in tandem and especially in the BRICS countries. The results of the study indicate that the existence of the bi-directional relationship between the use of renewable energy and economic growth is mainly indicated by the increase in GDP, thus lending support to the feedback hypothesis. Moreover, the conservation hypothesis was proven by the existence of a unidirectional causality relationship between the use of renewable energy and CO2 emissions. Alongside these, the study also included sensitivity analysis to gauge the impact of the growth of GDP on the CO2 emissions of BRICS countries, and regression analysis was performed to create an EKC curve which was used to gauge not only the sensitivity but also to help in highlighting the impact of using renewable energy in controlling and reducing CO2 emissions, thus proving the EKC theory. Thus, it can be deduced that increase in CO2 emissions is of major concern for the BRICS countries, which has led them to increase the production of renewable energy. Based upon the findings of the present study it is recommended that policymakers should encourage the use of renewable energy by offering incentives in financial terms, such as interest-free or low-interest loans, subsidies and feed-in tariffs.

Highlights

The production and consumption of energy are vital for achieving and sustaining economic growth in the long term [1]
One such concerted effort was by the EU, as in 2009 the EU set the target of converting 20% of its energy sources to renewable energy sources by 2020, and all of the member countries agreed to national renewable energy action plans; according to international energy statistics, almost 19% of global energy needs are being fulfilled by renewable energy, and by 2050 this percentage is set to increase to 50% [11,12,13]
Dynamic ordinary least square (DOLS) test was chosen based upon its qualities of robustness, which are of paramount importance in cases where the sample size is small; in such cases, it tends to outperform Fully Modified Ordinary Least Square (FMOLS) and OLS as it estimates the unbiased estimators for small samples

Summary

Introduction

The production and consumption of energy are vital for achieving and sustaining economic growth in the long term [1]. The importance of alternative or green energy sources can be assessed from the report of EIA (Energy Information Administration of USA), according to which the global energy demand will rise by 48% by 2040 This will put a great deal of stress on the environment, as it is an irrefutable fact that global energy production is one of the major causes of environmental pollution, mainly because most of the global energy production is fossil fuel-based [4]. In the past few decades, the global drive to reduce the reliance on fossil fuel-based energy has seen a great deal of backing by both developed and developing economies in the past few decades [10]. One such concerted effort was by the EU, as in 2009 the EU set the target of converting 20% of its energy sources to renewable energy sources by 2020, and all of the member countries agreed to national renewable energy action plans; according to international energy statistics, almost 19% of global energy needs are being fulfilled by renewable energy, and by 2050 this percentage is set to increase to 50% [11,12,13]

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Methods

Results