Does higher income lead to more renewable energy consumption? Evidence from emerging-Asian countries

Abstract

While some previous studies find a positive relationship between income or economic output and the share of renewables in energy consumption, others find a negative relationship. To bridge these seemingly contradictory findings, we test a non-linear relationship between income and the share of renewable energy sources in total energy consumption (REC%) in eight emerging-Asian countries. Using the feasible generalized least squares method and controlling for financial development and capital formation (two variables found in the literature to affect the use of renewable energy), we find a U-shaped relationship between income and the share of renewables in total energy consumption. In other words, at lower income levels, as income (Gross Domestic Product per capita) increases, REC% decreases. Once the income reaches a certain level, the relationship becomes positive. Financial development positively affects REC%. The implications and policy recommendations are presented in light of these findings.

Keywords: Emerging-Asian countries; Financial development; Income per capita; Renewable energy consumption; U-shape.