Renewable energy consumption, real income, trade openness, and inverted load capacity factor nexus in Turkiye: Revisiting the EKC hypothesis with environmental sustainability

Abstract

Ecological footprint and CO2 emissions are two important indicators used to measure the extent of environmental degradation. However, these indicators are insufficient to represent environmental sustainability––as they neglect the supply side of environmental pollution. The inverted load capacity factor (ILCF) which measures the load capacity excess, is an important indicator of sustainable environment––considering both the supply and demand side of environmental degradation. Therefore, the ILCF, which is used as a proxy for environmental sustainability is constructed by incorporating biocapacity and ecological footprint into a simultaneous analysis. In this context, our study that captures the period from 1965 to 2018 considers real income, renewable energy consumption, and trade openness as explanatory indicators. We further apply the autoregressive distributed lag (ARDL) approach alongside the Toda-Yamamoto Granger Causality (TYGC) test. The results suggest that (i) real income has a positive effect on ILCF both in the short- and long run; (ii) renewable energy consumption has a stimulating effect on ILCF in the short run; (iii) trade openness has a positive effect on ILCF in the short run whereas this relationship is negative in the long run; however, (iv) the Inverted Load Capacity Curve (ILCC) hypothesis which establishes an inverted U-shaped relationship between real income and ILCF––is valid in Turkiye for the sampled period. The overall results show that Turkiye has not yet reached the level of real income per capita that will sustain environmental sustainability. Although trade openness contributes to environmental sustainability, renewable energy consumption is not a solution to environmental sustainability. Based on these results, policymakers in Turkiye could urgently implement policies that ensure a sustainable transition to green growth and a circular economy.