The Long-Term Effect of Economic Growth, Energy Innovation, Energy Use on Environmental Quality

Abstract

This study advances in the analysis of the relationship between economic growth and environmental degradation, and how innovation and energy use impact on per capita greenhouse gas (GHG) emissions, in 17 selected OECD countries with over the period spanning from 1990 to 2012. The empirical model is found in the empirical hypothesis of the environmental Kuznets curve (EKC) scheme. The econometric results reveal a complete significant relationship, where economic growth, renewable electricity use and innovation correct environmental pollution, while biomass consumption and fossil electricity consumption affect negatively environmental correction process. This study implements a novel methodology in the analysis of the relationship between per capita GHG emissions and selected auxiliary variables, through an interaction effect which moderates the relationship between energy variables and economic cycle over per capita greenhouse gas (GHG) emissions. Hence, this study also incorporates De Leeuw’s finite lags effect in auxiliary variables, in order to validate the long-run effect of these variables over per capita GHG emissions. Consequently, the results validate the positive role that regulatory energy policies, linked with energy innovation processes and the replacement of polluting sources, have on environmental correction. The outcomes of this study demonstrate that in the long run, renewable electricity consumption and energy innovation measures delay the technical obsolescence. These results enable certain strengthened conclusions that help to explain the interaction between energy regulation, economic growth and per capita GHG emissions, and how are necessary the adoption of regulations which reduce energy dependency and mitigate the negative effect of dirty energy sources on per capita GHG emissions.