Abstract
The reduction in oil prices might make crude oil a cheaper alternative to renewable energy (RE). Given this, the present paper examines the effect of fluctuation of oil prices on the use of RE in the United States (US) during the period 1970 to 2018. We constructed two nonlinear autoregressive distributed lag (NARDL) models to examine the effect of the positive and negative oil price shocks on the use of RE in the US. The RE consumption is taken as the dependent variable and the gross domestic product (GDP), Brent crude prices, population density, trade openness, and price index as independent variables. The result revealed that the rise in crude oil price, GDP, and population density will increase RE use in the short run and in the long run as well. Moreover, the study finds that any decrease in oil prices will decrease RE use in the short run and its effect will eventually diminish in the long run. On the policy front, it is suggested that US should raise its energy security by reducing its dependency on imported crude oil and increase the role of RE through the imposition of taxes on oil and increase the base of production and consumption through a series of measures.
Highlights
In the last four decades, the dependency on energy increased much faster than ever before
LnRE is the natural log of renewable energy consumption, lnOP is the natural log of Brent crude price (US$ per barrel), lnPD is the natural log of population density, lnTRD is the natural log of trade openness measured in millions of constant US dollars and lnPI the natural log of price index and εt is error term with the assumption of normal distribution1
Before the nonlinear Autoregressive Distributed Lag (NARDL) is utilized it is important to confirm that all the variables are not stationary at the second difference
Summary
In the last four decades, the dependency on energy increased much faster than ever before. The world witnessed a paradigm shift in the use of the source of energy, from wind, water and coal to oil and natural gas during this period. Rise in the prices of oil and the environmental consequences of greenhouse gas emissions raised many eyebrows about the alternative source of energy, a replacement to the use of crude oil. More than a decade the renewable sources of energy have increased its importance across the globe including in the United States of America (USA). The political commitment of G7 countries and the European Union for achieving the future sustainability in the energy through the availability of renewable energy shows its importance (EC News, May 2015). Even the renewable energy initiatives of the G7 countries aims at making the energy accessible to all in the African region by improving the renewable energy by 2030 (UN 2015)
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