Renewable energy consumption, GDP and GHG emission. The moderating effect of regulatory quality: Evidence of a dynamic panel estimation from EU and BRICs

Aaron Ahali

University of Reading, UK

Regulatory quality has been considered a fundamental instrument for managing the environmental impact of Greenhouse gas emissions, including CO2 emissions. However, even countries with strong regulatory frameworks have not successfully curbed the environmental impact of manufacturing firms. Manufacturing firms constitute one of the backbones of advanced economies as they advance more industrial policy compared to emerging or developing countries, including the BRICs. While regulatory quality improves all aspects of private and public governance, renewable energy consumption has been seen as the most innovative way to mitigate the effect of GHG emissions. Curbing Greenhouse gas emissions and other environmental hazards has become a shared vision of developing, emerging and developed countries. However, the internal mechanism for the enforcement of regulatory frameworks and the importance of promoting renewable energy has been uncertain and unrealistic.

In this article, we analyse whether renewable energy consumption and regulatory quality reduce GHG emissions using a general modified panel data model, fully modified ordinary Least Squares (FMOLS), that integrates individual and interactive fixed effects and allows for concomitant correlation in the model. Drawing on regulatory and environmental sustainability theories, to determine the practical effects of renewable energy consumption, GDP and regulatory framework on GHG emissions, we assume that strong regulatory quality and renewable energy consumption should reduce GHG emissions. We test our propositions on 160 countries in the EU (135) and BRICS (25), covering from 2002 to 20022. The linear panel data analysis results show that renewable energy consumption reduces GHG emissions. Specifically, the effect of renewable energy consumption on GHG emissions is heterogeneous. We observe the effect of renewable energy consumption as greater than regulatory quality. However, the interactive effect of renewable energy and regulatory quality on the one hand and GDP and regulatory quality on the other generates a more perceived synergy effect on reducing GHG emissions. Our predictive margins shed more light on this nexus that informs both governments of the regions investigated. These results indicate an undeniable gap between the vision and the reality of advocating for renewable energy consumption and the strict enforcement of regulatory quality to foster the goal of curbing GHG emissions. This study provided insights into the future trends and priorities of global renewable energy consumption and the effective enforcement of regulatory quality.