Investigation on the causality relationship between environmental innovation and energy consumption: Empirical evidence from EU countries

Abstract

Environmental innovations, investments, and expenses have been identified as an efficient and reliable way of addressing ecological issues. Nevertheless, how environmental innovations, investments, and expenses may influence the level of environmental pollution in European nations and whether the outcome may fluctuate among various environmental innovation indicators remain to be inspected. Therefore, this research is designed to empirically scrutinize the influence of environmental innovations, environmental investment, environmental expenditure, research and development (R&D) expenses, and foreign direct investment (FDI) on renewable and non-renewable energy in a sample of 15 European countries during the period from 2005 to 2018. To achieve this, we apply robust panel econometric estimation techniques. After testing the stationary property of the series, the findings of the Pedroni cointegration test disclose the presence of a long-run stable connection among the series. The empirical results from the ARDL, FMOLS and DOLS regression show that the impact of environmental innovations, environmental expenditure, R&D expenses, and FDI help to reduce overall non-renewable energy and promote renewable energy. In contrast, environmental investment significantly increases non-renewable energy and diminishes renewable energy usage. Moreover, the findings of Dumitrescu and Hurlin's tests discover a unidirectional causality running from non-renewables and renewables towards environmental investment, environmental expenditure, and FDI. Additionally, bi-directional causality is found between environmental innovations R&D, with both non-renewable and renewable energy utilization. Furthermore, we summarize by arguing that the efforts toward efficient and sustainable use of energy by reducing the combustion of non-renewable energy sources should support modern and innovative strategies by ensuring the transformation of non-renewables with renewable energy sources.