Impact of Economic Growth and Renewable Energy Consumption on CO2 Emissions: New Evidence for the Top 10 Highest CO2 Emission Countries

Abstract

This study examines the impact of economic growth and renewable energy consumption on carbon emissions in the highest CO2 emitting countries. To achieve this objective, the study uses a panel annual data of the top 10 ten highest CO2 emitting countries from 1990-2020. This research uses the Environmental Kuznets curve (EKC) hypothesis framework which postulates an inverted U-shaped relationship between pollutant levels and per capita income and employs a pooled mean group autoregressive distributed lag (PMG-ARDL) model. The research finding confirms the presense of an inverted U-shaped relationship between economic growth and carbon emissions, and is therefore in accordance with the EKZ hypothesis. As a consequence, economic growth tends to increase carbon emissions to a certain limit. When economic growth is very high, estimated in this model at 11%, then carbon emissions can fall. This shows the high costs of reducing carbon emissions. On the other hands, the results show that renewable energy consumption, trade openness, and urbanization have positive effect on CO2 emissions. This finding is in accordance with the results of robustness tests using Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) regression analysis, except for renewable energy which shows a weak relationship in the short and long term. In addition, the PMG-ARDL results confirm that there is adjustment to deviations from long-term equilibrium relatively quickly. Overall, our findings underscore the importance of policy recommendations aimed at reducing CO2 emissions in these countries. This research contributes to the existing literature by shedding light on the intricate dynamics between economic growth, energy sources, and environmental sustainability.