The causal relationship between renewable energy consumption and economic growth: evidence from Europe

Abstract

The European Union Renewable Energy Directive sets an objective of increasing the renewable energy share of the used renewable energy in the EU by 2020. The objective of this study is to analyze and compare the short-run and long-run relationship between renewable energy consumption and economic growth in 12 European Union countries and to derive implications for renewable energy policy. To do so, we apply panel vector error correction model using the available annual data from 1990 to 2014 on 12 European Union countries. Moreover, Granger causality test is conducted to examine whether there exists any causal linkage between economic growth and renewable energy consumption. The findings indicate the presence of unidirectional causality running from economic growth to renewable energy consumption in the short run. However, in the long run, a bidirectional causal relationship between the variables in question exists.