The role of energy efficiency and energy diversity in reducing carbon emissions: empirical evidence on the long-run trade-off or synergy in emerging economies.

Abstract

Energy efficiency is often argued as a low-cost carbon emission mitigation strategy than energy diversity for emerging economies. Thus, deviations from carbon emission reduction goals due to diminished energy diversity may partially be compensated by energy efficiency improvements. This urgently requires an empirical analysis of carbon emission reduction impact of energy efficiency and energy diversity along with an investigation of any spillover effects. This study, therefore, investigates the long-run implications of energy efficiency and energy diversity on carbon emissions for emerging economies, covering the period 1990-2017. The long-run effect of energy efficiency on energy diversity and vice-versa is also examined to uncover any trade-off or synergy. The sample panel consists of the biggest seven emerging economies including, Brazil, China, India, Indonesia, Mexico, Russia, and Turkey. The empirical analysis is based on an augmented environmental Kuznets curve model, estimated using the panel autoregressive distributed lag modeling technique. The results corroborate the argument that energy efficiency is an effective low-carbon strategy than energy diversity in the long run. Specifically, a 1% increase in energy efficiency and energy diversity reduces carbon emissions by 1.2% and 0.5%, respectively. Moreover, it is also revealed that the long-run impact of energy diversity on energy efficiency is negative, suggesting that a 1% increase in energy diversity reduces energy efficiency by 0.3%. This evidence uncovers a trade-off between these two strategies in the long-run. However, the long-run impact of energy efficiency on energy diversity is insignificant. These findings suggest that both low-carbon strategies must be promoted in tandem by considering the long-run trade-off between energy diversity and energy efficiency in emerging economies.