The role of renewable energy and total factor productivity in reducing CO2 emissions in Azerbaijan. Fresh insights from a new theoretical framework coupled with Autometrics

Abstract

Environmental issues, such as carbon dioxide (CO2) emissions, are humanity's most critical issues. Emissions released by oil-producing countries is not small. This is because these countries have an abundance of fossil fuels with considerably low prices, and the cost of using these natural sources to obtain energy is significantly cheaper than using alternative energy sources. This study examined pollution in Azerbaijan, an oil-producing country. It uses a new theoretically grounded framework in which consumption-based CO2 emissions are a function of renewable energy consumption (REC) and total factor productivity (TFP), as well as income, exports, and imports. REC and TFP have not only emission-reducing properties but also growth-enhancing benefits and are, therefore, very useful to be considered in environmental policies. Econometric analysis was conducted with robustness checks and the state-of-the-art econometric methodology called Autometrics – a machine learning algorithm for model discovery – was employed. CO2 was found to be negatively affected by TFP and REC. Exports also exert a negative impact on CO2, while the effects of income and imports are positive. Our key policy insights are that Azerbaijani policymakers may wish to implement policies that further promote technological improvements, efficiency gains, and transitions to renewable energy.