Modelling the impact of renewable energy investment on global carbon dioxide emissions

Abstract

The adversities of climate change facing the world highlight the importance of reducing the rise of global carbon emissions (CO2E), which is a top priority for policymakers and researchers. Renewable energy is hailed as a remedy to the rise in global CO2E. However, there are persistently low levels of global renewable energy investment (REI). This study, therefore, examines the linear and non-linear effect of REI (measured by solar, wind, small hydropower, geothermal, biomass, marine, and biofuel energy investment) on CO2E using a global dataset from 2004Q1 to 2018Q1. The study also examines the economic growth mechanism through which REI influences CO2E. Using the Ordinarily Least Squares model, the findings show that all the measures of REI significantly increase CO2E from the linear analysis. However, the non-linear analysis showed that solar and wind energy investment have a statistically significant inverted U-shaped relationship with CO2E while small hydropower and biofuel energy investment have a statistically significant U-shaped relationship with CO2E. Thus, solar and wind energy investment reduce CO2E only after attaining a threshold of investment with the threshold value of solar and wind energy investment being 28.125 (representing about $1.64 trillion) and 26.308 (representing about $266.3 billion), respectively. Also, the threshold value of small hydropower and biofuel energy investment beyond which they increase CO2E are 20.071 (representing about $520.9 million) and 22.8 (representing about $7.978 billion), respectively. Finally, solar, wind and geothermal energy investment indirectly reduce CO2E by increasing green economic growth while the reverse exists for biofuel energy investment. Solar and wind energy investment is, therefore, recommended for attaining carbon neutrality targets. Policymakers should incentivize production tax credits, investment tax credits, feed-in-tariffs, subsidies, affordable loans, and research and development to drive solar and wind energy investment.