Renewable Energy Consumption in G-7 Countries: Evidence from a Dynamic Panel Investigation

Abstract

The necessity of transitioning from the fossil fuels era to a green economy based on renewable energy resources has become increasingly urgent. This is in order to minimize the impact of energy supply fluctuations and combat global warming, especially in the wake of the recent oil price shock due to the Russian invasion of Ukraine. The present study is aimed at identifying and analyzing the most influential variables affecting renewable energy consumption (REC) among the G-7 countries using a log-linear dynamic panel model that covers the data period from 1996 to 2018. The results indicated that foreign direct investment (FDI) and regulatory quality index (RQI) have negative impacts on REC, while urbanization and GDP per capita have positive influences. Furthermore, urbanization has the highest absolute value coefficient, which is equal to 1.26. This means that a one percent increase in urban population will lead to about a 1.26 percent increase in REC. This finding highlights the importance of planned urbanization and converting buildings and houses into environmentally friendly structures to promote REC. Also, the positive effect of GDP per capita on REC suggests that stable economic growth will enhance the share of REC in total energy consumption. Thus, the countries should robust their economies against exogenous shocks like energy price jumps. Finally, a two-stage Granger-type cointegration test showed that the variables are in a long-run and stable relationship, which implies the reliability of the research findings.