Is There a Preference in the OECD Countries to Shift Towards Clean Energy Consumption?

Abstract

From a demand-side perspective, this paper empirically investigates whether there is a shift in preference to clean energy consumption from dirty energy consumption for a panel of OECD countries. We focus on the possibility of non-symmetric preference shift by consumers to rising and falling energy prices, respectively, and to positive income growth and negative income growth, respectively. Using an Autoregressive Distributed Lag (ARDL) model which encapsulates both long-run equilibrium among energy demands, energy prices and income, and short-run dynamics, we find that income changes play a key role in shifting preference from dirty energy consumption to clean energy consumption. Taking into account the own-price effect and income effect on clean energy consumption, there is evidence complementing the findings of long-run green growth as documented by Papageorgiou et al. (2017) from the supply-side perspective. In addition, we find that clean energy demand reacts more to falling income than rising income in the short and long run, and to some extent this energy demand responds asymmetrically to its own rising and falling prices.