The Role of Renewable and Non-Renewable Energy on Economic Growth and the Environment

The consequences of human activities on the ecosystem and the environment have its inherent implications. This has been a topical discourse among energy economist /environmental practitioners and government officials saddled with the mandate to formulate energy blueprint and action plans. Thus, the need to carefully underpin the root cause and propose possible ways to mitigate against the protection of the environment is pertinent in a time of global consciousness towards green energy sources. This thesis is based upon this motivation. The thesis is structured into four parts. First, the investigation of energy use and economic growth nexus from 1960 to 2016 in South Africa while accounting for capital, labor, and carbon dioxide emissions. We applied Bayer and Hanck (2013) combined co-integration approach, Pesaran, et al. (2001) bounds test and Kripfganz and Schneider (2018) critical values and approximate p-values. The empirical evidence finds support for a long-run equilibrium relationship among investigated variables. The Granger causality test indicates one-way causality from energy use to economic growth, validating the energy-led growth hypothesis. Our study found an inverted U-shaped pattern between energy use and economic growth in the long run. This finding suggests that at a higher level of economic development there is less intensification of energy consumption, hence, signifying a decline in energy intensity while validating energy efficiency in South Africa. The second strands of this thesis proceed to examine the long-run and causal interaction between, renewable energy consumption, non-renewable energy consumption, and economic growth in a carbon function. The current study incorporates natural resources rent to the model as an additional variable. Empirical evidence is based on a balanced panel data between annual periods of 1996-2014 for selected EU-16 countries. The Kao test reveals a cointegration between carbon dioxide emissions, economic growth, natural resources rent, renewable, and nonrenewable energy consumption. The Panel Pooled Mean Group-Autoregressive Auto regressive distributive lag model (PMG-ARDL) suggests a positive significant relationship between the countries’ natural resource rent and CO2 emissions in the long-run. Implying that the overdependence on natural resource rent affects environmental sustainability of the panel countries if conservation and management options are ignored. Our study affirms that nonrenewable energy consumption and economic growth increase carbon emission flaring while renewable consumption declines CO2 emissions. The panel causality analysis reveals a feedback mechanism between economic growth, renewable, and nonrenewable energy consumption. We further observed a feedback causality between natural resources rent and economic growth. Effective policy implications could be drawn toward cleaner and environmentally friendly energy sources, especially in attaining the Sustainable Development Goals. The third strand of this dissertation offers a new perspective to the electricity-led growth hypothesis for the case of Pakistan. The dissertation revisits the interaction between electricity consumption, real gross domestic product and carbon dioxide emissions in Pakistan. To this end, our study relies on annual data from 1971-2014 for the econometric analysis while accounting for the structural break(s). According to the Maki cointegration test, a cointegration equilibrium relationship exists among electricity consumption, economic growth and carbon dioxide emissions. The empirical findings from Toda-Yamamoto causality test provided the following insights: (i) A unidirectional causality was found running from economic growth to electricity consumption. Thus, this study validates the conservative hypothesis, meaning that in Pakistan, conservative energy strategies cannot harm economic progress. (ii) Causality was also found running from electricity consumption to carbon dioxide emissions. This implies that industrial activities trigger an increase in carbon emissions flaring which in return translates into environmental degradation. This outcome has inherent policy implications which are further discussed in the conclusion section. Finally, the last section of this dissertation dwells on electricity consumption, carbon dioxide emissions and economic growth for the case of Zimbabwe. To achieve this, the study set off by examining the stationarity properties of the variables under review with the Zivot-Andrews (1992) unit root test that accounts for a single structural break. Subsequently, Maki (2012) cointegration test, which accounts for multiple structural breaks, is applied for equilibrium relationship between the variables under review while the long run regression of dynamic ordinary least square (DOLS) is employed for long-run coefficients as estimation procedures. In order to account for the direction of causality flow the Toda-Yamamoto (1995) causality test is used for annual frequency data set spanning from 1971-2014. Empirical evidence from the Maki cointegration test shows that there exists a long-run equilibrium relationship between electricity consumption, carbon dioxide emissions and real gross domestic product per capita over the sampled period. The long-run regression suggests that there exists a positive statistically significant relationship between real income and electricity consumption. Thus, corroborating the electricity-led growth hypothesis. This result is supported by the causality test, as one-way causality is observed running from electricity consumption to real gross domestic product. Thus, this is suggestive to government administrators and policymakers that the Zimbabwean economy is electricity dependent. However, there is a tradeoff for environmental quality. As increase in electricity consumption increases carbon dioxide emissions. The need for diversification of Zimbabwe energy portfolio to cleaner and environmentally friendly energy sources is recommended given the world global consciousness for cleaner energy consumption. Keywords: Energy conservation hypothesis, energy consumption, combined cointegration, Dynamic causality, Renewable energy consumption, non-renewable, Electricity Consumption, Economic Growth, Maki Cointegration, South Africa, and Pakistan.