The Interconnections between Renewable Energy, Economic Development and Environmental Pollution: A Simultaneous Equation System Approach

Abstract

Although the relationship between renewable energy and economic performance has attracted the interest of researchers in recent years, most of the analysis has focused on economic growth, which does not reflect the quality of standards of living. We employ a different approach measuring the impact of renewable energy consumption on the Human Development Index, which also considers qualitative characteristics. Using a simultaneous equation system approach that describes the interrelations between economic variables, renewable energy and pollution emissions with feedback effects, we provide robust evidence for a set of 28 OECD countries over the period 2004-2015, that renewable energy, human and physical capital are important factors for explaining the degree of sustainable development. Renewable energy consumption is mostly determined by higher levels of human capital, R&D, and the countries’ development stage. Furthermore, the development level, total energy consumption, and the education level are important for explaining environmental pollution.