Brant Liddle ESI, Singapore Perry Sadorsky York University, Canada How much does increasing non-fossil fuels in electricity generation reduce carbon dioxide emissions? Brant Liddle ESI, Singapore Perry Sadorsky York University, Canada

Motivation York (2012) Nature Climate Change Do alternative energy sources displace fossil fuels? OLS regressions, World Bank data 1960-2009, 130 countries (unbalanced) LHS: energy/electricity from fossil fuel sources RHS: energy/electricity from non-fossil fuel sources

York (2012) Fossil fuel electricity production p.c. Fossil fuel energy use p.c. Displacement coeff. non-fossil fuel energy p.c. -0.089* -0.079* -0.128* -0.219*

Motivation UN Sustainable Energy for All: Double share of renewable energy in the global mix by 2030 Asia-Pacific Economic Cooperation economies: Double the 2010 share of renewables in energy supply by 2030 North America Leader’s Summit: 50% clean power generation by 2025 in N.A.

Prior Work Estimated emissions offset from wind generated electricity, analyzing Texas generator-based data Cullen 2013, Am Econ J Econ Policy Novan 2015, Am Econ J Econ Policy All non-fossil fuels Developing countries

Models

Data IEA data, 117 countries, 1971-2011 Unbalanced, all countries w/ at least 20 observations

Variables CO2 emissions per capita from electricity & heat generation Real GDP per capita (PPP) Electricity consumption per capita from nuclear & renewable sources Share of electricity output generated from nuclear & renewable sources

Prices Real index of natural gas for industry & households Real index of coal for industry & households OECD countries, 1971-2011 Unbalanced: 23 countries for natural gas & 16 countries for coal

Methods Common correlated effects mean group estimator (CMG) Heterogeneous Robust to Nonstationarity, cointegration, breaks, serial correlation Mitigate cross-sectional correlation

Pretests Pesaran CD Test Pesaran CIPS Panel Unit Root Test Independence rejected for all variables Absolute value correlation coefficient: 0.4-0.7 Pesaran CIPS Panel Unit Root Test GDP per capita I(1) Other variables inconclusive

Results: Non-fossil Fuels P.C. Full (117) OECD (34) Non-OECD (83) Short-run CO2 p.c. (-1) 0.49 [0.45 0.54] 0.59 [0.51 0.67] [0.44 0.54] GDP p.c. 0.51 [0.39 0.63] 0.30 [0.09 0.60] 0.27 [0.16 0.38] Non-fossil fuels p.c. -0.17 [-0.23 -0.12] -0.11 [-0.18 -0.03] -0.13 [-0.20 -0.06] Long-run 1.01 [0.75 1.27] 0.72 [0.07 1.37] 0.94 [0.65 1.23] -0.34 [-0.45 -0.23] -0.26 [-0.45 -0.06] -0.35 [-0.50 -0.20]

Results: Non-fossil Fuels P.C. Full (117) OECD (34) Non-OECD (83) Short-run CO2 p.c. (-1) 0.49 [0.45 0.54] 0.59 [0.51 0.67] [0.44 0.54] GDP p.c. 0.51 [0.39 0.63] 0.30 [0.09 0.60] 0.27 [0.16 0.38] Non-fossil fuels p.c. -0.17 [-0.23 -0.12] -0.11 [-0.18 -0.03] -0.13 [-0.20 -0.06] Long-run 1.01 [0.75 1.27] 0.72 [0.07 1.37] 0.94 [0.65 1.23] -0.34 [-0.45 -0.23] -0.26 [-0.45 -0.06] -0.35 [-0.50 -0.20]

Results: Share Non-fossil Fuels Full (117) OECD (34) Non-OECD (83) Short-run CO2 p.c. (-1) 0.46 [0.40 0.51] 0.52 [0.44 0.61] 0.44 [0.38 0.50] GDP p.c. 0.39 [0.26 0.51] 0.31 [0.09 0.53] 0.37 [0.20 0.53] Share non-fossil fuels -0.40 [-0.50 -0.29] -0.22 [-0.33 -0.10] -0.47 [-0.63 -0.32] Long-run 0.71 [0.47 0.95] 0.66 [0.18 1.13] [0.35 0.96] -0.73 [-0.93 -0.53] -0.46 [-0.71 -0.20] -0.84 [-1.13 -0.55]

Results: Share Non-fossil Fuels Full (117) OECD (34) Non-OECD (83) Short-run CO2 p.c. (-1) 0.46 [0.40 0.51] 0.52 [0.44 0.61] 0.44 [0.38 0.50] GDP p.c. 0.39 [0.26 0.51] 0.31 [0.09 0.53] 0.37 [0.20 0.53] Share non-fossil fuels -0.40 [-0.50 -0.29] -0.22 [-0.33 -0.10] -0.47 [-0.63 -0.32] Long-run 0.71 [0.47 0.95] 0.66 [0.18 1.13] [0.35 0.96] -0.73 [-0.93 -0.53] -0.46 [-0.71 -0.20] -0.84 [-1.13 -0.55]

CO2 p.c. (-1) GDP p.c. Share non-fossil fuels Non-fossil fuels p.c. Coal price Natural gas price

Summary/Conclusions Large literature on relationship between energy consumption & CO2 emissions Smaller literature on negative relationship between renewable & nuclear energy consumption and CO2 emissions But, little work on estimating displacement effect on CO2 emissions from increasing share of non-fossil fuel consumption

Summary/Conclusions Increasing consumption of non-fossil fuels has only a moderate impact on reducing carbon emissions Increasing the share of non-fossil fuels in electricity has substantial impact on reducing carbon emissions That displacement effect is substantially/significantly larger in non-OECD countries than OECD countries

Summary/Conclusions Considered natural gas & coal prices OECD countries only (only 23 & 16 countries, respectively) Price elasticities small & often insignificant

Summary/Conclusions USAEE Working Paper No. 15-215 http://ssrn.com/abstract=2614524 USAEE/IAEE Working Paper Series Kevin Forbes USAEE Working Paper Series Coordinator Kevin.f.forbes@gmail.com btliddle@alum.mit.edu

btliddle@alum.mit.edu