Transition to renewable energy technologies and future prospects for oil‐exporting countries

• DOI: http://doi.org/10.1111/opec.12189
• Published date: 01 December 2020
• Author: Rozina Shaheen,Samar Khan
• Date: 01 December 2020

Transition to renewable energy technologies

and future prospects for oil-exporting

countries

Samar Khan and Rozina Shaheen

Effat University, Jeddah, KSA, Saudi Arabia. Email: roshaheen@effatuniversity.edu.sa

Abstract

In the context of recent energy transition from hydrocarbon molecules to electrons, this research

aims to examine the degree of substitution between renewable energy sources and fossil fuels

through a dynamic framework of time-varying parameters under state-space model. For this

purpose, this research selects four major oil-importing countries and employs annual time series

data for crude oil imports, gross domestic product, crude oil price, renewable energy consumption,

population growth, real effective exchange rate and industrial production index for each country in

the sample while covering the period 1991–2018. The estimates reveal positive and signif‌icant

income, population and industrial production index elasticities for most of the countries in the

sample. In addition, this research f‌inds negative and statistically signif‌icant elasticity between

renewable energy consumption and demand for imported crude oil for India, China and Japan,

although magnitude is very small. However, there is insignif‌icant and little substitution for US

data. This research is unique as to our knowledge there is no such study available before and it

provides insights for policymakers in oil-exporting countries to develop sustainable long-term

diversif‌ication strategies to reduce reliance on oil revenues.

1. Introduction

The world economy is undergoing an energy transition from ‘hydrocarbon molecules to

electrons’. Renewable energy remains a source of energy for industrial and human

purposes since around 4000 years ago (Golding, 1955). This became a strategic

alternative especially after oil price shock during the Arab oil embargo in 1973 (Lin

et al., 2007; Ng et al., 2009). Since then, there is a considerable growth in literature to

ensure energy and climate security through renewable energy sources. In particular, the

net oil-importing countries are consistently making efforts to avoid energy supply

dependence and disruptions and ensure non-reoccurrence of such oil price shocks. In this

context, these net oil-importing countries (Fig. 1) supported the strategic alliances to

formulate energy policies to ensure energy security and eff‌iciency through diversif‌ied

sources of energy, which led to the increased research on substituting renewable energy

©2020 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

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429

sources for conventional sources of energy (Yergin, 2006; Belkin, 2008; Abdeshahian

et al., 2010; Vijayaraghavan et al., 2010 and Ibeto et al., 2011).

As fossil fuels constitute around 80 per cent of the global demand for energy and to

reduce this dependency, policymakers and empirical researchers recommend to enhance

the generation and consumption of renewable energy sources (Mabro, 2006; Yergin,

2008). Renewable energy includes wind, biofuel, solar, thermal and biomass, which

contains insignif‌icant level of carbon content as compared to fossil fuels (Sambo, 2005;

Kannan and Marappan, 2011; Ibeto et al., 2011). Global energy statistics and empirical

research demonstrate the rapid growth in the renewable energy sources especially by

major net oil-importing countries such as China and the United States (Table 1).

1.1. Reinforcing factors triggering transition to renewable energy

Transition to renewable energy can be attributed to many triggers; however, it was

initiated by the growing environmental concerns over carbon emission, air pollution and

climate change. In particular, the concerns to control air pollution are a stronger global

driver to adopt renewable energy and move away from the energy system based on

hydrocarbon molecules to the system that relies on electrons. These concerns were

transformed as a policy debate in Rio de Janeiro, 1992, inducing the Kyoto Protocol in

1997 and f‌inally the COP21 conference in December 2015, which established Paris

Agreement to reduce the emission of carbon dioxide (CO2) while controlling the

consumption of hydrocarbon fuels. Therefore, current global energy consumption

patterns reveal that although fossil fuels are still dominant, there is a gradual increase in

nuclear power and renewables in the energy consumption mix (Fig. 2).

In addition, the accelerated level of urbanisation has affected the quality of urban air

due to increased amount of burning diesel and coal. Henceforth, in many countries this

China

20%

United

States

14%

India

9%

Japan

7%

Rest of the

world

50%

Figure 1 Major Oil-Importing Countries.

Source: British Petroleum Statistical Review of World Energy 2019 [Colour f‌igure can be viewed

at wileyonlinelibrary.com]

OPEC Energy Review December 2020 ©2020 Organization of the Petroleum Exporting Countries

430 Samar Khan and Rozina Shaheen