Renewable energy consumption and carbon emissions in developing countries: the role of capital markets

ABSTRACT

This study examines the impact of capital market on the relationship between energy consumption and carbon emissions. By employing a system Generalised Methods of Moments (GMM) for a sample of 138 developing countries over the period, 1990–2020, we find a U-shaped reverse relationship between renewable energy consumption and carbon emissions. The study reveals that beyond a threshold of 71.03, renewable energy consumption tends to increase carbon emissions. Similarly, the initial levels of carbon emissions reduce the use of renewable energy but beyond a 2.5 level of carbon emissions, renewable energy consumption begins to increase. We find that both the stock market and bond market reduce carbon emissions and enhance the levels of renewable energy consumption. We provide evidence to support that the capital market enhances the negative impact of renewable energy consumption on carbon emissions, while the corporate bond market magnifies the reductive effect of carbon emissions on renewable energy consumption.

KEYWORDS:

• Renewable energy consumption
• capital market
• carbon emissions

JEL CODES:

• E44
• F63
• F64
• G10
• N2
• O13
• P18
• P28
• Q2
• Q56

Disclosure statement

No potential conflict of interest was reported by the author(s).

Declarations

Availability of data and materials

The datasets used and/or analysed during the current study are available (with corresponding author) on reasonable request.

Citation for available data

databank.worldbank.org/reports.aspx?source = global-financial-development databank.worldbank.org/source/world-development-indicators

Notes

1 See Appendix 1.

2 https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Carbon_dioxide_emissions

3 The use of higher lags of the respondent variable as instruments hinges critically on the assumption of no autocorrelation in the initial disturbance term.

4 From equation 1: $\mathrm{T}\mathrm{h}\mathrm{r}\mathrm{e}\mathrm{s}\mathrm{h}\mathrm{o}\mathrm{l}\mathrm{d}\mathrm{p}\mathrm{o}\mathrm{i}\mathrm{n}\mathrm{t}={\displaystyle \frac{d\mathrm{C}\mathrm{a}\mathrm{r}\mathrm{b}\mathrm{o}\mathrm{n}\mathrm{e}\mathrm{m}\mathrm{i}\mathrm{s}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}}{d\mathrm{R}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{w}\mathrm{a}\mathrm{b}\mathrm{l}\mathrm{e}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{r}\mathrm{g}\mathrm{y}\mathrm{c}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{u}\mathrm{m}\mathrm{p}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}}={\lambda }_2+2{\lambda }_3\left(\mathrm{R}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{w}\mathrm{a}\mathrm{b}\mathrm{l}\mathrm{e}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{r}\mathrm{g}\mathrm{y}\mathrm{c}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{u}\mathrm{m}\mathrm{p}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}\right)=0}$. From Table 3, $\mathrm{T}\mathrm{h}\mathrm{r}\mathrm{e}\mathrm{s}\mathrm{h}\mathrm{o}\mathrm{l}\mathrm{d}\mathrm{o}\mathrm{f}\mathrm{R}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{w}\mathrm{a}\mathrm{b}\mathrm{l}\mathrm{e}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{r}\mathrm{g}\mathrm{y}\mathrm{c}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{u}\mathrm{m}\mathrm{p}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}={\displaystyle \frac{0.152}{2\left(0.00107\right)}=71.03}$

5 From equation 2: $T\mathrm{h}\mathrm{r}\mathrm{e}\mathrm{s}\mathrm{h}\mathrm{o}\mathrm{l}\mathrm{d}\mathrm{p}\mathrm{o}\mathrm{i}\mathrm{n}\mathrm{t}={\displaystyle \frac{\mathrm{d}\mathrm{R}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{w}\mathrm{a}\mathrm{b}\mathrm{l}\mathrm{e}\mathrm{e}\mathrm{n}\mathrm{e}\mathrm{r}\mathrm{g}\mathrm{y}\mathrm{c}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{u}\mathrm{m}\mathrm{p}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}}{\mathrm{d}\mathrm{C}\mathrm{a}\mathrm{r}\mathrm{b}\mathrm{o}\mathrm{n}\mathrm{e}\mathrm{m}\mathrm{i}\mathrm{s}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}}={\text{β}}_2+2{\text{β}}_3\left(\mathrm{C}\mathrm{a}\mathrm{r}\mathrm{b}\mathrm{o}\mathrm{n}\mathrm{e}\mathrm{m}\mathrm{i}\mathrm{s}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}\right)=0}$. From Table 5: $\mathrm{T}\mathrm{h}\mathrm{r}\mathrm{e}\mathrm{s}\mathrm{h}\mathrm{o}\mathrm{l}\mathrm{d}\mathrm{o}\mathrm{f}\mathrm{C}\mathrm{a}\mathrm{r}\mathrm{b}\mathrm{o}\mathrm{n}\mathrm{e}\mathrm{m}\mathrm{i}\mathrm{s}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}={\displaystyle \frac{6.677}{2\left(1.312\right)}=2.545}$