Exploring the Relationship between Crude Oil Prices and Renewable Energy Production: Evidence from the USA

Abstract

This study aims to examine the short-term and long-term relationship between WTI oil prices and renewable energy production considering U.S. crude oil production, world oil prices, and other domestic and global factors. We employ several time-series analysis techniques, including the augmented Dickey-Fuller test and the Phillips-Perron test for unit roots; the long-term relationship is examined using fully modified OLS (FMOLS) and Park’s canonical cointegration regression (CCR). We also utilise an error correction model (ECM) to distinguish between short- and long-term effects. It is shown that at a constant level of crude oil production, an increase in energy production from renewable sources is accompanied by an increase in oil prices. Thus, at this stage of development, despite the increased production, renewable energy can be considered as complement to but not a substitute for crude oil. Our empirical estimations allow us to conclude that renewable energy production today is pushing the price of oil up rather than lowering it.