Examining the Effects of Renewable Energy and Economic Growth on Carbon Emission in Canada: Evidence from the Nonlinear ARDL Approaches

Abstract

Increasing industrial activities trigger the intense use of fossil fuels and increase the number of carbon emissions in the atmosphere. Countries with a high share in current carbon emissions need to expand their use of renewable energy sources. Canada is an important energy producer and consumer globally. In this regard, its decisions are important for the future development of global emissions. This study examines the asymmetric effects of economic growth, renewable energy, and non-renewable energy consumption on carbon emissions in Canada from 1965 to 2017. In the first stage of the analysis, unit root testing was performed for the variables. For this, Lee-Strazicich (2003), ADF and PP unit root tests were used. The nonlinear ARDL method was used to analyze the relationship between variables. and Measures: In order to analyze the relationship between the variables in the established model, renewable energy consumption (%), non-renewable energy consumption (%), and carbon emissions (per capita-Mt). In addition, the economic growth (constant price 2010- US$) parameter was added to the model as a control variable. The findings support that energy consumption, economic growth, and renewable energy have an asymmetric effect on carbon emissions in the long run. The positive shock in renewable energy reduces carbon emissions, and a unit increase in renewable energy reduces carbon emissions by 1.29%. Besides, the negative shock in economic growth greatly deteriorates the quality of the environment; that is, a 1% reduction in economic growth causes emissions to increase by 0.74% in the long run. On the other hand, positive shocks in energy consumption have a positive and significant effect on carbon emissions. A 1% increase in energy consumption causes 1.69% carbon emissions. There are important policy implications for Canada to eliminate carbon emissions, increase the share of renewable energy sources and achieve its economic growth targets. In addition, Canada needs to reduce its consumption of non-renewable energy (such as gasoline coal, diesel, and natural gas).