Better clean or efficient? Panel regressions

Most national and international climate agendas promote energy efficiency and fossil to renewable energy substitution as key future policy directions. This paper surveys macro-energy-emission-output panel assessments and shows that previously estimated carbon response functions present diverging shapes with less evidence on the confounding role of development. This study applies a multivariate regression equation and both Pesaran (1995) and Pesaran (2006) mean group estimators with common correlated effects to illustrative samples of countries with data covering five decades. For all groups, long-run panel coefficients show that energy efficiency improvements associate with larger negative carbon responses than fossil-to-renewable energy shifts. Estimates derived from high-income economies are much smaller in magnitude and significance compared to those of developing countries, which is further corroborated by country-level parameters. This implies that least-energy efficient and -green economies can benefit from a wider set of carbon abatement policies.

Automated summary

Most climate agendas advocate for energy efficiency and a shift from fossil fuels to renewable energy as crucial future policy directions. This study examines macro-energy-emission-output panel assessments and finds that previously estimated carbon response functions have varying shapes, with limited evidence on the impact of development. Through regression equations and mean group estimators, the study analyzes data from countries over five decades, revealing that energy efficiency improvements have a greater negative carbon response compared to shifting from fossil fuels to renewable energy. Additionally, the study shows that developing countries have larger and more significant carbon response coefficients compared to high-income economies, indicating that less energy efficient and "green" economies can benefit from a wider range of carbon abatement policies.