Does energy efficiency and trade openness matter for energy transition? Empirical evidence for countries in the Organization for Economic Co-operation and Development

Abstract

An energy transition is currently underway around the world, in response to the objectives laid out by international agreements. Since the Kyoto protocol and the Paris agreement, countries have been making considerable efforts to replace fossil fuels with alternative sources in the electricity generation mix. The energy transition of each country depends on their starting point, so international agreements on their own, may not be effective in speeding up the transition. In this paper, two energy transition metrics are calculated: clean-energy transition and low-carbon-energy transition. The clean-energy transition describes the transition from fossil to renewable sources, while the low-carbon-energy transition represents the transition from fossil to renewable and nuclear power sources. This paper aims to examine the determinants of energy transition in countries of the Organization for Economic Co-operation and Development over a long-time span, from 1971 to 2016. Feasible Generalized Least Squares (FGLS) and Panel-corrected Standard Errors (PCSE) estimators were applied to deal with heteroskedasticity and cross-sectional dependence phenomena. Generally, the results show that energy security and the carbon-intensity of energy consumption are obstructing a low-carbon transition. Energy-efficiency and trade-openness are driving the energy transition, while the carbon-intensity of energy consumption is constraining it. Energy efficiency measures are needed to accelerate the energy transition, by reducing the use of fossil fuels.

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Fig. 1

Notes

  1. 1.

    The integration of the series is not always analysed in the literature that uses the PCSE estimator (e.g. Bersalli et al. 2020). When the presence of cointegration is detected through the Westerlund test, other estimators are applied, such as CCEMG (Common Correlation Effect Mean Group) or AMG (Augmented Mean Group) (e.g. Le and Sarkodie 2020; Wang et al. 2020). However, the application of FGLS and PCSE estimators is also present in the literature with the non-rejection of the null hypothesis in the Westerlund test (e.g. Le and Nguyen 2019).

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Acknowledgements

We would like to express our gratitude for the comments offered on a previous version of this paper presented and discussed at the 4th International Conference on Energy and Environment (ICEE): bringing together Engineering and Economics, Guimarães, Portugal. We also thank the anonymous reviewers for their useful comments and suggestions. This work was supported by NECE-UBI, Research Unit in Business Science and Economics, sponsored by the Portuguese Foundation for the Development of Science and Technology (Fundação para a Ciência e a Tecnologia), Project UIDB/04630/2020.

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Correspondence to António Cardoso Marques.

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Afonso, T.L., Marques, A.C. & Fuinhas, J.A. Does energy efficiency and trade openness matter for energy transition? Empirical evidence for countries in the Organization for Economic Co-operation and Development. Environ Dev Sustain (2021). https://doi.org/10.1007/s10668-021-01228-z

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Keywords

  • Clean energy transition
  • Low-carbon energy transition
  • OECD
  • FGLS
  • PCSE