Relationship between energy consumption and environmental sustainability in OECD countries: The role of natural resources rents

Highlights

• Investigates the role of natural resources rents on environmental degradation.

• Employs carbon footprint, carbon dioxide emissions and ecological footprint.

• Conducts advanced panel data estimation techniques by using annual data for OECD countries.

• Natural resources rents increase carbon footprint and carbon dioxide emissions.

• Renewable and non-renewable energy has a significant role in environmental sustainability.

Abstract

This study investigates the impact of disaggregated energy consumption and natural resources on environmental sustainability for the Organization for Economic Co-operation and Development (OECD) countries. To this end, CO₂ emissions, ecological footprint and carbon footprint data covering the period 1980–2016 are used as proxies for environmental deterioration. The study applies an advanced panel data estimation tool, augmented mean group (AMG) estimator, for the long-run estimation, that allows dependencies across countries and heterogeneity in the slope parameters. The findings of the study indicate that non-renewable energy has a detrimental effect on the environment, while renewable energy reduces deterioration in the environment in terms of ecological footprint and carbon footprint. Natural resource extraction contributes to increasing CO₂ emissions, whereas its role is not statistically significant in ecological footprint and carbon footprint. The study provides empirical evidence revealing the requirement for efficient and sustainable natural resource utilization, together with the increasing rate of renewable energy in the energy mix to achieve a sustainable environment and development.

Introduction

Environmental pollution has remained an obstacle to the way of sustainable development because it brings numerous environmental challenges including climate change, global warming, deforestation, scarcity of water and pollution, that each one has become a vital threat since the 1950s. Over a half-century, countries have been struggling to combat the environmental issues raised from human activities (Ozcan et al., 2019a). In this respect, the mitigation of climate change has become a critical focus for various policy initiatives. Currently, it emerges as a global phenomenon due to its crucial role in achieving sustainable development that is one alternative for humanity to survive (Ulucak et al., 2019). Therefore, in the 21st century, the climate change issue has become the most crucial on-going concern owing to the detrimental effects of global warming, and calamitous climatic events that retain to destroy the whole planet (Danish et al., 2017). Further, the world has not accomplished an economic growth rate that ensures sustainable resource consumption and waste. Unfortunately, this has raised serious concern regarding the sustainability of such a growth trajectory because a rise in economic growth increases resource usage and energy demand, which causes environmental degradation (Ulucak et al., 2020b). The relationship between energy, economic growth, and the environment has turned out to become a hot issue of debate among academicians and policymakers as a result of sustainability concern (Kang et al., 2019).

The impacts of economic growth on environmental degradation are explained in two ways. First, economic growth accelerates natural resource extraction leading to an increase in the waste generation (Sarkodie and Strezov, 2019). However, technological innovation, strict environmental policy measures, and a structural economic change from pollution-intensive industries to services and the knowledge sector reducing ecological degradation can be achieved through higher income level-through higher economic growth in the long-run (Grossman and Krueger, 1991). On the other hand, initial rises in the economic growth process accelerate material usage, production, and consumption that contribute to pollution (Panayotou, 1993). Also, excessive resource consumption due to industrialization, deforestation, and mining reduce environmental quality (Danish et al., 2019). The integration of practices for sustainable management into the production and consumption processes declines the rate of natural resource depletion, and resources are allowable to redevelop thereafter.

The second strand is that economic growth influences emissions through high energy demand and consumption. Energy, especially from fossil sources, has been recognized as the key source of global emissions while it has been identified as a crucial catalyst for socio-economic activities worldwide (Bhat, 2018), which shows its potential in the improvement of livelihood and well-being (Wang et al., 2018). However, contrary to this vital role of energy, fossil energy sources are finite and unsustainable, and their overuse causes environmental degradation, whereas renewables are abundant and sustainable and might be helpful to clean the environment (Owusu and Asumadu-Sarkodie, 2016). Most industrial countries are dependent on dirty energy fuels (coal, oil, and gas) for production activities, and energy requirements are fulfilled through fossil fuels (Balsalobre-lorente et al., 2018).

Based on the argument above, both renewable and non-renewable energy have separate roles in economic growth and environmental quality, and it is necessary to seek to decouple environmental degradation from the energy consumption-growth trajectory. Therefore, it is of importance to know the causal relationship between renewable energy, non-renewable energy, natural resources and CO₂ emissions. Hence, the present study investigates the relationship between renewable energy, non-renewable energy, natural resources rent, per capita income and environmental pollution nexus in the OECD countries.

The study concentrates on the OECD sample because OECD countries currently contribute nearly 63% to the world GDP in US dollars. Also, they are responsible from a considerable share of energy use (4145.046 kg of oil equivalent) and per capita CO₂ emissions in the world, that are much more amounts than world average per capita energy use and CO₂ emission (Ozcan et al., 2019b). Research has focused on investigating the nexus energy-growth and environmental degradation by using total energy or CO₂ emissions, and most of them have ignored the role of disaggregated energy or alternative environmental degradation measurements including carbon footprint and ecological footprint for OECD countries.

Possible contributions of the study to the related literature lie on three points. First, unlike earlier studies on the nexus between energy consumption-growth-pollution nexus, this study uses two environmental quality indexes, ecological footprint, and carbon footprint, in addition to CO₂ emissions. All three indexes of environmental performance reflect various dimensions of pollution. Second, this study includes the natural resource rents into the pre-determined pollution equation, which is a function of disaggregated energy consumption, since the natural resources and their possible environmental consequences have become a hot issue of debate. The inclusion of natural resources rents to the model would be beneficial to learn about the current energy scenario in OECD countries. Because resource-rich countries are less dependent on energy imports and thus help control environmental degradation by generating renewable energy from their resources (Balsalobre-lorente et al., 2018). Resource curse or the failure of countries with less natural resources mostly rely on energy imports (fossil fuels), which contribute to environmental degradation. Despite the combative nature of natural resources, studies on disaggregated energy and environmental pollution have ignored it so far. Third, a more robust long-run panel data estimation tool called augmented mean group (AMG) estimator is used, which allows cross-correlation across panel sections and heterogeneity in the slope parameter. Hence, it is probable the study would contribute to the current literature by consideration of new variables and robust results of the study.