Causality between Renewable Energy Consumption and Economic Growth: A Literature Review

Abstract

With climate challenges and the depletion of fossil resources. The option of renewable energies seems a wise choice which renews the debate on the relationship / causality between the consumption of renewable energy and economic growth.

From a theoretical point of view the link between these two variables can be treated with forecast models which are very often macro-econometric models (computable general equilibrium models) with a Top-down approach which starts from a macroeconomic balance which is gradually disaggregated. Or the opposite, with a "stock picking" view which is a bottom-up method that begins with a detailed description of the energy system with a complete list of various forms of energy, as well as the range of technologies available or to be. The two approaches (bottom-up and top-down) can be used simultaneously because they allow it to answer different questions posed by the rationalization of the production and consumption of energy so-called "hybrid" models. The same question can be treated by the elasticity logic, generally 4 hypotheses mark the causal relationship between energy and economic growth as well as the political consequences which ensue from it: the first, is the hypothesis of growth or energy causes GDP. In the second, a reduction in energy consumption has no negative effects on real GDP, it is the hypothesis of conservation. Under the neutrality assumption, the effect of energy on real GDP is small or zero. However, if a two-way causal relationship between energy consumption and real GDP exists, it is the feedback hypothesis.

Similarly, the empirical studies that address this relationship are heterogeneous. This contrast is mainly due to the method used: time series, panel data, the bivariate approach (studies with only two variables: energy consumption and real GDP) and finally the multivariate approach. In addition to the method this difference can be explained by the size of the sample and the representative variables.

JEL Classification : B22, B23, O13, Q49.

Paper type: Theoretical Research.