Renewable versus non-renewable: The role of electricity generation to economic growth

Abstract

This paper examines the effects of electricity generation from both types of energy sources on sustainable state economic growth. For the analysis, this paper uses the panel data set for 47 U.S. states from 1999 to 2017 by employing the two-step Generalized Methods of Moments model. The results show that renewable energy generation has a positive impact on state economic growth whereas non-renewable energy generation may hampers economic growth. This supports that development of renewable energy resources helps not only reducing average costs to generate electricity but improving environmental quality as zero emission resources, which enhances productivity. Even though non-renewable energy can create economic benefits as a main factor of production, burning fossil fuels generates air pollution, which directly threatened labor and capital productivities. In other words, non-renewable energy generation does not help sustainable economic development, unless the economic gains exceed the productivity losses arose from the negative environmental externalities. Furthermore, this paper finds that the effects of renewable energy generation on economic growth are different at a level of development stage: at an early stage, electricity generation from renewable energy resources hurts economic growth while at an advanced-stage, renewable energy helps to grow the economy. The results imply that the very low operating costs for renewable energy could offset the huge financial burden of high initial investment costs in the long run.