The efficiency of fiscal instruments in the spread of renewable energy: The case of EU countries

Renewable energy has become very important due to the worldwide environmental pollution reaching large dimensions and the disruptions in energy supply. As a result, various public tools are used in the production and consumption stages in order to promote renewable energy. Reducing environmental pollution has become a legal obligation in EU countries. In addition, the EU wants to reduce its energy dependence on Russia. For these reasons, many instruments are used in the spread of renewable energy in EU countries. In this study, the effect of environmental taxes and R&D expenditures on renewable energy consumption in 17 EU countries for the period 1995-2019 is examined. In the study, first of all, cross-section dependency tests were applied. According to the results of CDLM1 (Breusch and Pagan, 1980), CDLM2 and CD (Pesaran, 2004) cross-sectional dependence tests, it is seen that there is cross-section dependence in all variables and in the model used. Then, if the slope coefficients are heterogeneous or homogeneous, the homogeneity test was applied since the tests to be applied in other stages may change. According to the test result, it is seen that the slope parameters are heterogeneous. According to these results, second generation tests were applied in the study. The stationarity of the series was tested with the Pesaran CIPS unit root test. It is seen that the series are stationary at first difference for all countries. Then, long-term relationships were examined by applying Westerlund and Edgerton's LM Bootstrap cointegration and Durbin-Hausman panel cointegration tests. Since there is long-term cointegration between the series, the coefficient estimates for these relationships were estimated both for the countries and for the panel with the AMG and DCCE long-term coefficient estimation tests. Finally, the causality relationship between the variables was examined with the Emirmahmutoğlu – Köse panel causality test. Finally, policy recommendations were made by evaluating the test results.