Investigating the causal linkage among economic growth and renewable and non‐renewable energy consumption: cases of Germany, the UK and France

• Published date: 01 December 2021
• Author: Mounir El‐Karimi
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/opec.12215

Investigating the causal linkage among

economic growth and renewable and

non-renewable energy consumption: cases

of Germany, the UK and France

Mounir El-Karimi

Mohammed V University in Rabat, Rabat 11000, Morocco. Email: elkarimi.mounir@gmail.com

Email: mounir.elkarimi@um5s.net.ma

Abstract

This empirical study examines the causal links among renewable energy consumption (REC) and

non-renewable energy consumption (NREC) and economic growth in Germany, the UK and

France between 1980 and 2019. To this purpose, we use two different approaches: Toda and

Yamamoto (Journal of Econometrics, 66, 1995, 225) time causality test and Lemmens et al.

(International Journal of Forecasting, 24, 2008, 414) frequency causality test. For UK and France,

the results show no significant causality between Gross Domestic Product (GDP) and REC, which

supports the neutrality hypothesis. Regarding NREC, similar findings are obtained. However, for

Germany, the time approach indicates bi-directional causality between REC and GDP, while the

frequency approach shows uni-directional causality from REC to GDP in the long-run. Therefore,

there is a consensus on the growth hypothesis in Germany. Furthermore, the frequency analysis

displays also one way causal nexus running from Germany’s GDP to NREC in long horizons. The

policymakers in UK and France should take into account that renewables and energy conservation

policies are neutral in respect to economic growth. As for Germany, measures of reducing NREC

would not significantly damage GDP, and renewable energies promotion plan would be beneficial

for economic growth.

1. Introduction

Energy consumption is a crucial factor in many sectors of an economy, and energy

demand is met through the provision of two different energy sources: renewable and

non-renewable. The main non-renewable sources are coal, oil, natural gas and nuclear

power, which cannot be recovered or soon renewed after use, and the reserves of such

energy resources are limited in nature and are unequally distributed by countries. In

contrast, renewable sources such as geothermal, wind, hydroelectric, solar, biomass and

waves are not limited and are exploitable in mostly all the countries.

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Economic and social developments in the last decades have continuously enhanced

the energy demand while the global dependence on primary energy sources has raised

many global issues. These concern energy supply security, high dependency on forei gn

energy sources, non-renewable characteristic of primary energy sources, climate change

and energy price shocks (e.g. Sadorsky, 2009). As a result, many developed and

emerging countries has committed to accelerate the transition from non-renewable

sources to renewables (e.g. Sadorsky, 2009). Several countries are continuously

increasing the investment in their renewable energy sectors and supporting them with

diverse national policies, such as tax credits for renewable energy supply, renewable

energy portfolio measures, etc. (e.g. Bowden and Payne, 2010).

Since being fully participated in the first commitment period of the Kyoto Protocol

1

that entered in force in 2005, Germany, UK and France committed themselves to

replacing fossil fuels with renewable energy sources. As a consequence, since the second

part of the 2000s, the considered countries has being registered an increasing tendency

for renewable energy consumption (REC; see Appendix 1, Figure A1). Furthermore,

non-renewable energy consumption (NREC) has started to suit decreasing trends in all

the considered countries since 2008 (see Appendix 4, Figure A2). Currently, the

aforementioned countries are still compiling with the second commitment period of the

Kyoto protocol that began since 2012.

According to Domac et al. (2005), the REC could help to increase the economic

efficiency through the creation of employment and a several economic gains. Otherwise ,

some studies examined the energy consumption and economic growth through their

linkages to CO2 emission (e.g. Ashraf et al., 2020; Mosikari and Eita, 2020). In this

article, we investigate the causal nexus among renewable and NREC and economic

growth in Germany, UK and France, which are top 12 in the world in terms of REC (see

Appendix 2).

The organisation of the rest of this empirical article is as follows. Section 2 provides

a literature review on the investigated topic. Section 3 introduces the theoretical basis of

the used econometric methods. Section 4 displays the data series and presents the results.

Finally, Section 5 concludes the empirical results.

2. Literature review

In recent years, the nexus between economic growth and REC has frequently been

examined in the literature, along with the rising interest in renewable energy sources. We

can distinguish four main groups of studies in respect to their concluded empirical

findings. The first part of previous studies concludes that there is one way causal impact

running from REC to Gross Domestic Product (GDP). This relationship is called in the

literature “Growth hypothesis.”The second part finds a bi-directional causal link among

©2021 Organization of the Petroleum Exporting Countries OPEC Energy Review December 2021

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