Long-run dynamics of renewable energy consumption on carbon emissions and economic growth in the European union

This paper examines long-run and short-run dynamics of renewable energy consumption on carbon dioxide (CO₂) emissions and economic growth in the European Union. This study employs cointegration tests, Granger causality tests and vector error correction estimates to examine the direction of Granger causality, the long-run dynamics of economic growth and energy variables on carbon emissions. This study analyses time series data from the World Development Indicators over the period from1961 to 2012. The results of this study support a link between renewable energy consumption, economic growth, industrialization, exports and CO₂ emissions in the long-run and short-run. The results support that the sign of the long-run dynamics from the endogenous variables to the CO₂ emissions variable is negative and significant, which implies that the energy and environmental policies of the European Union aimed at curbing CO₂ emissions must have been effective in the long-term. Furthermore, renewable energy consumption and exports have significant negative impact on CO₂ emissions in the short-run. However, industrialization and economic growth have positive impact on CO₂ emissions in the short-run. The results suggest that both economic growth and industrialization must have been achieved at the cost of harming the environment. The finding suggests that the increasing consumption of renewable energy tends to play an important role in curbing carbon emissions in the region.