A nexus between renewable energy, FDI, oil prices, oil rent and CO2 emission: panel data evidence from G7 economies

• Published date: 01 June 2022
• Author: Saransh Royal,Kamaljit Singh,Ramesh Chander
• Date: 01 June 2022
• DOI: http://doi.org/10.1111/opec.12228

A nexus between renewable energy, FDI, oil

prices, oil rent and CO

2

emission: panel data

evidence from G7 economies

Saransh Royal , Kamaljit Singh and Ramesh Chander

University School of Management, Kurukshetra University, Kurukshetra, Haryana, India. Email:

saransh.usm@kuk.ac.in Email: kamaljitsehjanusm17@kuk.ac.in Email: rcdalal@kuk.ac.in

Abstract

Volatile energy prices, supply chain vulnerability and ecological implications of depleting fossil

fuels have obligated the nations to swap carbon energy resources with sustainable and

consumption energy choices. The study aims to investigate the sustaining connection of renewable

energy consumption with trade openness, oil rent (OR), oil prices (OP) and carbon dioxide

emissions of the G7 nations over the period 1971–2019. Using FMOLS and DOLS approach to

panel data for analysing the long-run elasticity, and SUR for estimating the short-run elasticities.

The analysis outcomes suggested that in the long run, a rise in Foreign Direct Investment (FDI)

incursion and OP and OR are found to be major drivers of renewable energy consumption. The

long-term elasticity was estimated from a panel co-integrated FMOLS and DOLS model are

mostly alike and present an encouraging association among different variables. Surprisingly, the

average number of years to return to equilibria turned out to be 16 years, which is precisely in line

with the voluntary commitment by G7 for overall net-zero electricity emission by 2035. The

findings reported in the study suggest the oil-producing countries should be compensated to

diversify energy production. Higher OR is desired to further strengthen the renewable energy

generation and consumption as implied by the findings reported. FDI may also further be

welcomed in greener know-hows for sustainable green energy choices.

1. Introduction

Energy capacities play a significant role in the development of economies throughout the

world. Volatilities in energy expenses, energy reliability, ecological difficulties, energy

security and constrained carbon-based energy sources have obligated the nations to

replace conventional energy sources with non-conventional energy sources. The non-

conventional sources comprise solar, wind, hydroelectricity and biomass energy, which

will further act as chauffeur of sustainable development throughout the world.

The G7

1

plays a vital role in supporting the desire for climate protection in this

decade. The seven countries (Canada, France, Germany, Italy, Japan, the United

©2022 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

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Kingdom and the United States) represent sixty percent of the global fortune and 30.7

percent of the worldwide GDP. Also, this statistics is predicted to drop further to twenty-

eight percent in 2025 (Szmigiera, 2021). Hence, the environmental procedures of these

major frugalities in the world and their engagements are predominantly imperative (G7

countries’transition towards a low-carbon economy |Climate Transparency, 2018)in

the course of evolution towards a carbon deficit economy. Further, associating the G7

transformed configuration in energy consumption, several inclinations can be discovered

such that every nation has amplified their stake in renewable energy since 2019, further

this trend was led by Germans and British (Wagner, 2018). Shockingly, the Japanese

seem to limit their oil depletion targets in favour of augmented atomic energy generation

capabilities, even though the “Fukushima in 2011”happening contracted the civic

support for this energy source severely. The multiparty communique from the

government of “the group of seven”endorses their obligation to the globally established

object of restricting global warming to <2°C beyond the pre-industrial intensities

(Carbon Brief Staff, 2015).

The present investigation theorised the sustaining connection of renewable energy

consumption with openness (OPN), oil rent (OR), oil prices (OP) and carbon dioxide

emissions of the G7 nations over the period 1971–2019. Though the previous researches

expose an analogous scope of the study; however, this investigation supplements the

prevailing literature in many prominent areas. First and foremost, conflicting with the

previous efforts, the paper integrate OR in the pre-determined renewable energy

generation decision making. Further that in most economies OP differential plays a

major role in determining the inflation rate. The inclusion of this additional variable

would help investigate the linkage of the other variable on renewable energy in an

unbiased manner. Lastly, the study also investigates the short-run and long-run

affiliations by employing the fully modified ordinary least square (FMOLS), dynamic

ordinary least square (DOLS) and seemingly unrelated regression (SUR) estimates.

The paper is organised in the following sections: In the second section, previous

researches related to the subject of interest are reported. Model estimation and data are

further explained by the third and fourth sections individually. The fifth section

elucidates the econometrics outcomes and discusses the potential reasoning behind the

outcome, while the last section deals with conclusions and policy repercussions.

2. Literature Review

In this section, an attempt has been made to pr´

ecis all the previous studies associated

with the subject matter. Table 1reviews all the related studies. The literature has been

scrutinised on the basis of time period, sample, the methodology adopted for the study

©2022 Organization of the Petroleum Exporting Countries OPEC Energy Review June 2022

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