Is income inequality a driver for renewable energy consumption?

https://doi.org/10.1016/j.jclepro.2020.120287Get rights and content

Highlights

  • The study investigates the influence of income inequality on renewable energy consumption in 43 countries.

  • The panel ARDL method is carried out in this study.

  • Fairer income distribution positively affects renewable energy consumption.

  • According to findings, economic growth and trade openness do not affect renewable energy consumption.

  • On the other hand, corruption control and CO2 emissions positively affect renewable energy consumption.

  • Policymakers have the opportunity to do better income distribution and environmental quality at the same time.

Abstract

Although many initiatives have been made to research the effect of income inequality on environmental issues, the question of whether income inequality affects renewable energy consumption hasn’t been answered. This gap in the literature raises an important question that needs to be answered by researchers: can the income inequality affect renewable energy consumption? As far as is known, the study is the first attempt to discover this relationship. Therefore, the impact of income inequality on renewable energy consumption is examined theoretically and empirically in 43 developed and developing countries for 2000–2015. In order to avoid the omitted variable problem; economic, environmental and institutional variables such as GDP per capita, corruption, CO2 emissions and trade openness are included in the model. The results demonstrate that the decline in income inequality will enhance renewable energy consumption. In other words, policymakers have the opportunity to reduce income inequality and environmental degradation at the same time. Similarly, corruption control and raise CO2 emissions will increase also renewable energy consumption. Otherwise, economic determinants such as economic growth and trade openness have no meaningful effect on renewable energy consumption.

Introduction

Sustainable improvement of economic, social and ecological life for future generations requires making the right decisions from today. In this context, promoting sustainable development has become an important objective for all countries. In 2015, 193 members of the United Nations (UN) designated 2030 sustainable development goals in order to achieve sustainable development (Nerini et al., 2018). Within the framework of this plan, which aims to reduce poverty and inequalities, increase environmental quality and establish strong institutions, it is aimed to solve today’s important social, economic and environmental problems (UN, 2019). Otherwise, it is often mentioned that income inequality and decreasing environmental quality are two of the most important obstacles to sustainable development in international public opinion (Liu et al., 2019). With a similar emphasis, the UN (2019) expressed that climate change and inequalities are two of the most urgent matters of our time and pointed out that the solution of these problems is a priority strategy for the creation of harmonious societies.

Sachs (2015) emphasized that the world economy has achieved significant success in promoting economic growth, but has not acquired the same success in terms of welfare distribution and the environment. Therefore, it can easily be said that income inequality is one of the most important obstacles to the creation of harmonious societies. Especially since the 1980s, the rapid deterioration of income distribution has become an important socioeconomic problem (Piketty, 2014). The rapid deterioration of income distribution increased the interest on the subject and led to an increasing examination of income distribution dynamics in developed and underdeveloped countries. Particularly in the US and other OECD countries, income distribution has deteriorated rapidly over the last few decades (Stockhammer, 2017). This rapid deterioration in income distribution also affected the dynamics of wealth distribution. For example, Saez and Zucman (2016) indicated that the share of the top 0.1% group in total wealth in the USA increased from 7% in 1987 to 22% in 2012. In addition to developed countries, income distribution has been observed to deteriorate significantly in developing countries during the neoliberal period. For instance, Banerjee and Piketty (2010) reported that in India, the share of the top 1% group in total incomes increased during the economic liberalization period. Similarly, Dong and Hao (2018) and Piketty et al. (2019) revealed that income inequality in China has increased significantly in the recent times.

Another important obstacle to sustainable development is the rapid increase in environmental degradation (UN, 2019). The rapid increase in production and consumption at global level has brought about energy consumption and the unconscious consumption of natural resources. The world population, the globalization of economic relations and the increasing use of fossil fuels have increased environmental pressures and caused significant changes in the ecosystem. According to the BP Statistical Review of World (2019), fossil fuels such as crude oil, coal, and natural gas account for 75% of primary energy consumption. As BP (2019) points out, meeting most of the energy needs with fossil fuels reduces energy efficiency and causes significant environmental problems. Increased emissions of greenhouse gases such as carbon dioxide (CO2) from the use of fossil fuels are one of the main factors of environmental degradation, such as global warming and climate change. However, although there has been a global consensus on reducing CO2 emissions in recent years, global CO2 emissions continue to increase rapidly. CO2 emissions, which were 11193.9 million tons in 1965, increased threefold to 33890.8 million tons in 2018. It is stated that environmental pressure will increase more and more if CO2 emissions cannot be reduced (UN, 2019). For this reason, increasing energy efficiency and reducing CO2 emissions have become strategic factors in achieving sustainable development goals.

The accelerating environmental crisis has made the renewable energy types such as wind, geothermal, solar and biomass a strategic choice in achieving sustainable development goals (Burke and Stephens, 2018). Renewable energy is a sustainable energy source that is described as ecological and can be reproduced with the use of available resources. Environmental impacts are quite small due to the lower CO2 emissions during the production of renewable energy sources compared to fossil fuels. Pascual et al. (2015) emphasized that the historical development of CO2 emissions and environmental degradation is largely related to fossil fuel demand and that renewable energy demand should be raised to stop environmental degradation. In addition to increasing environmental pressure, the high fluctuations in oil prices and the energy security problems caused by dependence on fossil resources motivate the deployment of renewable energy. Renewable energy consumption, which was 41 mtoe (million tonnes of oil equivalent) in 1965, increased rapidly and reached 561.3 mtoe in the beginning of 2000s. Between 2007 and 2017, renewable energy consumption increased by an average of 16.4%. In 2018, the last year of data collection, renewable energy consumption increased by 14.5% and reached 2480.4 mtoe. Although there have been significant developments in the spread of renewable energy in recent years, its share in primary energy consumption is only 4% (BP, 2019). In this context, determining the factors that will increase the share of renewable energy in total energy consumption is very crucial in terms of environmental quality.

Increasing concern over environmental degradation and income inequality in recent years has brought a new dimension to the environmental discussion by linking environmental problems with socioeconomic inequalities (Wolde-Rufael and Idowu, 2017). Within this context, whether inequalities have an impact on environmental degradation has become an important research question. Starting from this, researchers have undertaken to search the influence of income distribution dynamics on environmental indicators such as CO2 emissions, ecological deficit, water, and air pollution and important literature has started to be formed. Although many studies have been conducted on the subject, there has been no consensus on the theoretical and empirical level. Boyce, 1994, Torras and Boyce, 1998 and Uzar and Eyuboglu (2019) describe that environmental problems are a social problem stemming from income and power inequalities, while some scholars such as Scruggs (1998) and Grunewald et al. (2017) refer that deterioration in income distribution increases or not affect environmental quality. As can be seen, there is important literature about the connection between these two indicators. However, the impact of income distribution on renewable energy on which important catalyst in reducing CO2 emissions and improving environmental quality has been neglected. In fact, in recent years, initiatives to identify the key determinants of renewable energy have increased rapidly. In the recent literature, it is seen that economic, environmental and political variables such as economic growth (Apergis and Payne, 2010), CO2 emission (Sadorsky, 2009), trade openness (Jebli and Youssef, 2015), employment (Zhao and Luo, 2017), oil price (Apergis and Payne, 2014), and institutional quality (Cadoret and Padovano, 2016) come to the fore as the primary drivers of renewable energy. Although it is very substantial to detect the economic, environmental and political determinants of renewable energy, neglecting an important factor such as income distribution causes the social-ecological part of the environmental/energy studies not to be discovered. Undoubtedly, whether renewable energy, an important antidote to environmental degradation, can be an alternative for societies, it cannot be considered independent of income and power inequalities. Because in societies where economic concerns are diminished and income distribution is fair, environmental concerns can come to the forefront and the demand for a clean environment may increase with a collective conscious. Therefore, it is highly likely that the demand for environmental quality will affect the consumption of renewable energy. Within this scope, uncovering the potential connection between income distribution and renewable energy is crucial to avoid environmental degradation. This raises an important question that needs to be answered by researchers: can the dynamics of income inequality affect the consumption of renewable energy?

The study struggles to answer the question of whether income inequality affects renewable energy consumption. Thus, the influence of income inequality on renewable energy consumption is examined theoretically and empirically in 43 developed and developing countries for 2000–2015. In order to avoid the omitted variable problem, economic, environmental and institutional variables such as GDP per capita, corruption, CO2 emissions and trade openness are added to the model. Thus, it is aimed to research the drivers of renewable energy in a comprehensive manner.

The study aims to contribute to the literature with some features. Although there is extensive literature on the main determinants of renewable energy consumption, the impact of income inequality on renewable energy consumption has been neglected. In the literature, there are very limited studies examining the various interactions between these two important cases. Apergis (2015) searched the influence of renewable energy on income distribution, while McGee and Greiner (2019) researched the influence of the interaction between renewable energy and income distribution on CO2 emissions. As far as is known, this is the first study to examine the direct impact of income inequality on renewable energy consumption in terms of theoretical and empirical. Second, the findings can be a substantial guide for policymakers in the design of energy and environmental policies. If a negative interaction is detected between income inequality and renewable energy, policymakers can have the opportunity to create a harmonious society where income is distributed fairly and to reduce environmental pressure. This creates a new win-win strategy in the fight against environmental degradation at a national and international level.

The following sections of the study are organized as follows: Potential links between income inequality and renewable energy are discussed in Section 2. Related studies are offered in Section 3. It is described the methodology in Section 4. The model and data definitions are introduced in Section 5. The findings are reported in Section 6. In Section 7, the study is concluded and policy implications are outlined.

Section snippets

Environment, renewable energy and income inequality: potential channels

Laurent (2015) stated that sustainable development has three pillars: economic, social and ecological. He emphasized that although economic-social (inclusive development) and economic-ecologic (green economy) connections have been examined comprehensively, social-ecologic links are still unclear. Fig. 1, which is based on Laurent (2015) methodology, shows that social-ecological relationships are the missing link. As mentioned in the previous section, the missing link situation is more

Literature review

Since income distribution and environmental degradation have become two of the most urgent problems in recent years, interest in these issues has been increasing worldwide. Studies have generally concentrated on the influence of income inequality on environmental indicators such as CO2 emissions, ecological footprint, water pollution, air pollution and biodiversity. When the studies are examined, it is seen that empirical results are different from each other, similar to the complex theoretical

Methodology

In the study, the long and short term relationships among variables are analyzed via panel ARDL-PMG method developed by Pesaran et al. (1999). The panel ARDL-PMG model that is categorized as an error correction model is an effective method for defining short and long relationships (Liu et al., 2019). The PMG estimator is an improved version of the MG estimator developed by Pesaran and Smith (1995). The MG estimator uses the average value of the coefficients for each country and assumes that the

Model and data definitions

This study aims to fill the gap in the literature by examining the effects of income inequality on renewable energy consumption at the empirical level as a first attempt. In addition, per capita GDP, trade openness, CO2 emissions and corruption are added in the model to discover the effect of economic, environmental and institutional factors on renewable energy consumption. Within this context, 43 developed and developing countries are analyzed for 2000–2015. Period and country selections are

Unit root procedure

As the first step of empirical analysis, unit root levels of the variables will be determined. As it is known, in order to apply the panel ARDL method, the variables should be I (0) or I (1). Within this context, the unit root levels of the variables are determined primarily by Levin et al. (2002) (LLC) and Im et al. (2003) (IPS) tests, which are widely used in the literature. Both tests are corrected versions of first-generation unit root tests to include cross-sectional dependence with

Conclusion and policy implications

Although there are studies examining the connection between income inequality and environmental degradation in the literature, potential relationships between income inequality and renewable energy consumption have been neglected. Otherwise, studies examining the determinants of renewable energy have mostly focused on economic and environmental factors. Therefore, it has not been analyzed whether income inequality is a potential determinant of renewable energy. This gap in the literature raises

CRediT authorship contribution statement

Umut Uzar: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Software, Writing - original draft, Writing - review & editing.

Declaration of competing interest

I declare that there are no conflicts of interest.

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