The Potentialof Renewable Energy: Using The Environmental Kuznets Curve Model

Abstract

This study examines the potential of Renewable Energy Sources (RES) in reducing the impact of carbon emission in Malaysia and the Greenhouse Gas (GHG) emissions, which leads to global warming. Using the Environmental Kuznets Curve (EKC) hypothesis, this study analyses the impact of electricity generated using RES on the environment and trade openness for the period 1980-2009. Using the Autoregressive Distributed Lag (ARDL) approach the results show that the elasticities of electricity production from renewable sources with respect to CO₂ emissions are negative and significant in both the short and long-run. This implies the potential of renewable energy in controlling CO₂ emissions in both short and long-run in Malaysia. Renewable energy can ensure sustainability of electricity supply and at the same time can reduce CO₂ emissions. Trade openness has a significant negative effect on CO₂ emissions in the long-run. The Granger causality test based on Vector Error Correction Mode (VECM) indicates that there is an evidence of positive bi-directional Granger causality relationship between economic growth and CO₂ emissions in the short and long-run suggesting that carbon emissions and economic growth are interrelated to each other. Furthermore, there is a negative long-run bi-directional Granger causality relationship between electricity production from renewable sources and CO₂ emissions. The short-run Granger causality shows a negative uni-directional causality for electricity production from renewable sources to CO₂ emissions. This result suggests that there is an inverted U-shaped relationship between CO₂ emissions and economic growth.