Dynamic Impacts of Renewable Energy on Carbon Emissions: A Cross-Income Analysis Using Advanced Econometric Models

Abstract

This paper aims to establish the long run and short run relationship between renewable energy consumption (REC) and carbon dioxide emissions (CO₂) in 126 countries within the period of 2001 to 2022 with the use of panel data that includes high income, upper-middle income, lower-middle income and low-income countries. To control for endogeneity, serial correlation and cross-sectional dependence, System GMM and CS-ARDL models are used in the analysis. This research also reveals that REC has a significant inverse relationship CO and the effect is most significant in low-income countries. The study also looks at the part played by natural resource rents, population density, foreign direct investment (FDI) and urbanization in determining emissions. The findings suggest that dependence on natural resources leads to emission of greenhouse gases especially in the low-income countries, while the effects of population density and FDI are mixed depending on the level of income. The study also affirms the need to promote the REC for climate change mitigation across the globe particularly in the developing countries while at the same noting the importance of the economic factors in policy making. Conclusions for future research and policy recommendations are discussed.