Energy and spatial spillovers: How renewable and non-renewable energy impact the environment?

Abstract

Atmospheric emissions in one location can significantly affect adjacent regions, creating spatial dependencies. If ignored, it may biased empirical estimates of environmental degradation. This study employs spatial econometric techniques to measure the indirect (spillover) effects of renewable and non-renewable energy on CO 2 emission. Using a balanced panel of 96 countries over the period 1992-2021, the results verify the Environmental Kuznets Curve (EKC) hypothesis, confirming an inverted U-shaped relationship between economic growth and CO 2 emissions. Renewable energy consumption (REC) reduces environmental degradation (CO 2 emissions), while non-renewable energy consumption (NREC) increases them. Notably, the spillover effect of REC exceeds its direct effect, indicating that investment in renewable energy technology generates substantial cross-border environmental benefits. Conversely, NREC increases CO 2 emissions, albeit with a lower spillover effect. From a policy perspective, the outcomes of this study emphasize the global advantages of expanding renewable energy capacity, especially in high-emission countries, given that reductions in emissions extend beyond national borders. By explicitly quantifying global spatial spillover effects within an EKC framework, this study contributes a novel analytical dimension that has been largely overlooked in prior cross-country research.