The repercussions of business cycles on renewable & non-renewable energy consumption structure: Evidence from OECD countries

Abstract

The role of energy can't be underestimated for sustainable development. Both renewable and non-renewable energies have opposite effects on policy issues. However, a choice between renewable and non-renewable energies during different business cycle phases becomes important as changes in business cycles affect economic growth and energy demand. Therefore, the business cycles' impact on renewable and non-renewable energies at different stages in the business cycle is essential and strategic to be explored. In consideration of this present study examines the impact of business cycles (recessions and booms) on renewable and non-renewable energy consumption in the OECD states over 1996–2015. The effect of the business cycle on renewable and non-renewable energy consumption is heterogeneous during a recession and economic growth. Institutions and foreign direct investment are also included as moderating factors. Institutions and foreign direct investment are essential to lessen the negative impact of the business cycle on production cycles, thus the energy sector. Institutional quality is found to support increasing renewable energy consumption even in recessions. Foreign direct investment also effectively increases renewable energy consumption but shows different effects during the recession and boom periods. Therefore, foreign investment in research and development is required to develop green technologies that can serve as the principal source of power generation. Government subsidies and risk mitigation measures can help promote investment in renewable energy projects during a recession.