THE DETERMINANTS OF RENEWABLE ENERGY CONSUMPTION AND THE DYNAMIC RELATIONSHIPS AMONG RENEWABLE ENERGY, ECONOMIC GROWTH, AND ENVIRONMENTAL QUALITY IN ASEAN-4 COUNTRIES

Abstract

Economic growth highly depends on energy from conventional sources which is, unfortunately among the major factors that triggers environmental pollution. Energy demand is continuously increasing and eventually may lead to the depletion of resources. Renewable energy is an alternative to accommodate the current demand and it is more environmentally friendly. This analyzes the extent to which determinants can affect the use of renewable electricity consumption in Malaysia from 1980 until 2014 using Johansen-Juselius co-integration approach. The empirical findings reveal that GDP per capita and trade openness encourage renewable electricity consumption; carbon dioxide (CO2) emissions, electricity consumption from fossil fuels and oil prices have negative implications on renewable electricity consumption. Next, this study examines the existence of environmental Kuznets curve (EKC) hypothesis by incorporating hydroelectricity consumption and trade openness in Malaysia from 1980 until 2014 via autoregressive distributed lag bounds testing. GDP was found to be positively significant in explaining CO2 emissions in the long- and short-run but the EKC hypothesis cannot be confirmed. The long-run estimates show that hydroelectricity is insignificant on CO2 emissions while trade openness has positive impact on the environmental quality. Furthermore, hydroelectricity and trade openness are positively significant on CO2 emissions in the short-run. Finally, this study investigates the short- and long-run dynamic causality relationship between renewable electricity consumption, economic growth and environmental quality in ASEAN-4 countries over 35-year period using panel co-integration and Granger causality. The empirical evidence exhibits unidirectional causality running from renewable electricity consumption to CO2 emissions, GDP per capita, renewable electricity and real exports to real imports in the short-run. Additionally, a unidirectional causality from emissions, income, conventional energy used, real exports and imports to renewable electricity used in the long-run also exists. In conclusion, there are various determinants affecting renewable electricity consumption in different ways, and hydroelectricity consumption is insufficient to reduce pollution in Malaysia. Moreover, the conservation hypothesis is supported in ASEAN-4 countries. In this case, government needs to improve energy efficiency and develop suitable policies related to renewable energy to mitigate climate change.