The contributory capacity of natural capital to energy transition in the European Union

Abstract

In spite the growing attention on the role of carbon capturing and sequestration schemes in mitigating emissions, its contribution to the deployment of renewable energy remains uncomfortably low, especially in Europe. Thus, the current study contributes to the literature by investigating how natural capital captured by biocapacity amidst carbon emission influences renewable energy deployment by controlling for the role of openness to trade and oil utilization among the European countries. Based on a panel data analysis of over the period 1990–2016, we follow rigorous econometric approaches that accommodates country-specific factors such as the cross-sectional dependence, country-specific heterogeneity, and the non-stationarity dimension of the variables. Fundamentally, the results confirm the presence of significant long-term association among variables. The empirical results also authenticate that oil utilization and carbon emissions discourage renewable energy deployment by inelastic proportions. In essence, the result suggests that energy transition advancement is propelled by the deployment of carbon sequestration techniques through the expansion of natural capital. Moreover, evidence illustrates that the productive capacity of the Europe's ecosystem and openness to trade are critical to the region's energy transition policy, thus an influential factor of renewable energy supply. Furthermore, the causality analysis reveals a feedback effect between biocapacity and renewable energy, and between trade and renewable energy. The findings offer a platform for re-invent policy implications for the region.