THE GREEN PARADOX REVISITED: RENEWABLE ENERGY, ECONOMIC GROWTH, AND CARBON EMISSIONS IN A PANEL OF 58 COUNTRIES (2000–2021)

Abstract

This paper focuses on the impact of renewable energy status on the association between renewable energy and economic growth and carbon dioxide (CO₂) emissions per capita over 2000–2021 by exploiting an unbalanced sample of 58 countries. The Environmental Kuznets Curve (EKC) hypothesis is tested along with examining if the consumption of renewable energy can moderate the income–emissions nexus. We report good evidence of an inverted-U EKC relation by using pooled OLS, fixed effects and interaction models with country-clustered standard errors. The per-capita CO₂ emission coefficient is –0.3037 (p < 0.001), which means that a 1% renewable energy share goes hand in hand with a 0.30% CO₂ emission reduction per capita, with income and structural conditions unchanged. The EKC turning point is outside of the range of countries observed (ln(GDP) ≈ 13.43, or $678,262), indicating that most countries are in the upward-sloping range of the EKC. The EKC shape is found to be flatter and the renewable-energy decarbonization impact more pronounced in low-income countries than in high-income countries, as revealed by subsample analysis where the turning point of the EKC is found at $44,195. Granger causality tests show there is bidirectional causality between renewable energy and CO₂ emissions. The results indicate that rapid renewable energy deployment is a key, although not the only, policy tool for decarbonization, especially in developing countries.