Investigating renewable energy-climate change nexus by aggregate or sectoral renewable energy use?

Abstract

Investigating the effect of renewable energy on the drivers of climate change correctly is significant as it is the basic source of climate change mitigation. In the extant literature, its effect on climate change has been estimated predominantly by regressing aggregate rather than sectoral renewable energy use either on aggregate greenhouse gas emissions or the components of greenhouse gases (GHGs) like carbon dioxide emissions. Against this backdrop, the paper investigates if we should estimate the nexus (i) by the causal effects running from aggregate or sectoral renewable energy use to GHG emissions and (ii) by the causal effects running from renewable energy consumption to aggregate GHG emissions or to its components like carbon dioxide (CO2) emissions. To this end, the paper introduces negative and positive (functional) complementarity between sectoral renewable energy consumptions in reducing or increasing GHG emissions, takes 20 OECD countries from 1990 to 2019, and uses augmented and non-augmented auto-regressive distributed lag approach and vector error correction mechanism. The study finds substantial differences among the results coming out of (i) regressing aggregate and sectoral renewable energy consumption on GHG emissions and (ii) regressing renewable energy consumption on aggregate GHG emissions and on CO2 emissions. The paper suggests regressing sectoral rather than aggregate renewable energy consumption on the components of aggregate GHG emissions like CO2 emissions rather than on aggregate GHG emissions to produce workable, specific, and conclusive policy alternatives.