The role of green technology on carbon emissions: does it differ across countries’ income levels?

ABSTRACT

This study examines the impact of green technology on CO₂ emissions in a sample of 45 countries for 1989–2018. Renewable energy consumption and environmental-related patents are used as indicators of green technology. We consider the production of renewable energy and the development of climate-related innovation as ‘two sides of the same coin’. One needs to be complemented by the other for countries to be successful in the fight against climate change. After applying the fixed-effect method with Driscoll and Kraay standard errors, results reveal that renewable energy consumption significantly reduces CO₂ emissions in the full sample and all three subsamples (High-income, Upper-middle-income, and Lower-middle income countries). However, environmental-related patents significantly lower CO₂ emissions only in very high-income countries. This paper also analyses how CO₂ emissions influence the development of green technology and carbon-intensive technology. A negative association is found between renewable energy and CO₂ emissions in the high-income and upper-middle-income groups. Environmental-related patents respond positively to carbon emissions only in high-income countries. The results allow us to draw important conclusions for energy policies. Among the necessary measures to be adopted, developing countries should not neglect the promotion of green innovation, which is a critical condition for carbon neutrality achievement.

KEYWORDS:

• Green technology
• income groups
• renewable energy consumption
• environmentally-related patents
• driscoll and kraay standard errors

JEL CLASSIFICATION:

• O30
• O32
• C23
• Q56

Disclosure statement

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

Notes

¹ The rebound effect is a situation in which the additional energy saved due to the improvement in energy efficiency (more efficient heating system, insulation, fuel-efficient vehicle, etc.) will be offset by an increase in energy demand (Gu et al. 2019; Milindi and Inglesi-Lotz 2021). This ultimately shows that the impact of green technology on carbon emissions is difficult to predict when considering human behaviour to new technology.

² Countries are allocated to their respective income group according to the World Bank classification of income per capita (Lower-middle, $1026 to $3995; Upper-middle income, $3996 to $12,375; High income, $12,376 or more). To constitute our dataset, we have followed the sampling methodology used by Milindi and Inglesi-Lotz (2021). We have selected in each income category, the 15 countries that have produced the most carbon emissions during the years 2000–2018.

³ A typical example is the transport industry. An ‘optimal’ impact on carbon emissions can be obtain only if electrical vehicles, which are an example of green technology innovation, are charged with electricity from renewable energy, and not from fossil fuel energy.

⁴ Very high income countries include 10 countries: France, United Kingdom, Germany, United States, Netherlands, Canada, Japan, Australia, Italy, and Belgium. These countries have an average GDP per capita greater than 36,000 USD during our study period.

⁵ The evolution of carbon intensive technology (such as number combustion engines vehicles, electricity generation from fossil fuel sources, etc.) has followed similar evolution of non-renewable energy consumption, which in our point of view, makes it a good proxy for carbon intensive technology. More non-renewable energy consumption is also an indication that an economy as a whole invest more in technologies that are fossil-fuel friendly than green energy friendly.

⁶ However, there is an exception for China, Bangladesh, Pakistan, and Kenya. These countries are at the limit of entering their respective income group.

⁷ As it can be observed from the patents graph (Figure 2), the 10 countries which are classified in this study as ‘very high income countries’ have the highest number of patents. The estimations results show that this increasing quantity of green patents coincides with a mitigation of carbon emissions. The quantity of green patents is also indicative of the efforts put in terms of investment in R&D in green technology innovation (Gu et al. 2019). Another aspect which certainly plays an important role in reducing carbon emissions, but which can hardly be proven, is the quality of green technology inventions represented by these patents. It is not enough to have a large amount of patents but it is also necessary that these patents are sufficiently valuable to bring a good contribution in reducing the level CO₂ emissions (Hall, Jaffe and Trajtenberg, 2005). In view of the results, it seems that high quality inventions are developed in these 10 countries.

⁸ For instance, to obtain the average value of renewable energy consumption (REN_AV) for 2005, we sum up renewable energy consumption for that particular year (2005), for all 15 countries and we divide by 15.:

⁹ Carbon emissions is directly and positively linked to non-renewable energy (Grossman and Krueger).

¹⁰ This does not mean lower income countries do not invest in renewable energy. It just means that they invest more in fossil fuels energy than green energy.

¹¹ Model (3a) |-1.667| |0.7209| > Model (3b) |0.1542| |-0.308|

¹² Model (3a) |-0.854| |0.1300| > Model (3b) |0.1435| |-0.0520|

¹³ Notably conditions related to the application strong environmental regulations.

¹⁴ To enable the transition to a low-carbon economy compatible with the Paris agreement objective of limiting the increase of a global temperature below 1.5 degrees by 2100, the International Energy Agency (IEA) estimates that around 3.5 trillion dollars investment will be required annually between 2016 and 2050 (IEA and IRENA 2017).