The dynamic role of institutional quality, renewable and non-renewable energy on the ecological footprint of OECD countries: do institutions and renewables function as leverage points for environmental sustainability?

Abstract

This article examines for the first time the impact of disaggregated energy sources and institutional quality on the ecological footprint (EF) of 29 OECD countries, by explaining how the diversification in countries' energy mix and their institutional performance are associated with sustainable environmental performance. We use panel data from 1984 to 2016 and we apply second-generation techniques to arrange the critical issues of cross-sectional dependence and heterogeneity. The applied cointegration tests expose a long-run equilibrium relationship that associates renewable/non-renewable energy consumption, economic growth, institutional quality, and the EF of OECD countries. The robust cross-sectional augmented distributed lag (CS-DL) estimator shows that economic growth and the adoption of non-renewable energies are detrimental to the environment, while the operational quality of institutions adds to ecological sustainability. Concurrently, the negative effect of renewables on EF does not seem to cause a significant beneficial impact on the environment. Moreover, there is evidence that non-renewable energy and institutional quality have a bidirectional causal association with EF. Also, a weak unidirectional causal effect is running from the EF to renewables consumption. The study further demonstrates the inefficient integration of renewable energy forms in OECD countries and the concomitant essential role of institutions on environmental sustainability by providing relevant policy orientations.