FOSSIL & RENEWABLE ENERGY CONSUMPTION, GHGs AND ECONOMIC GROWTH: EVIDENCE FROM A RIDGE REGRESSION OF KYOTO ANNEX COUNTRIES

This study has analyzed the relationship between energy consumption, GDP and CO2 emissions of Annex-I countries in Kyoto Protocol for the period 2000-2010. In this paper, aggregate energy consumption has been split into renewable and non-renewable energy usage in EKC framework to discuss the potential effects of renewables on GHGs. Since there has been a multi-collinearity between the energy consumption and income variables, one of the biased statistical methods for fitting the multi-collinearity among the independent variables, namely Ridge regression method was used. Empirical results show that EKC hypothesis for Annex I countries of Kyoto Protocol has been rejected although they have been supposed to decrease the GHGs. Moreover, while some of the countries have potential to meet the Kyoto targets, especially countries in transition will have to endure environmental deterioration as a result of economic growth. Indeed, renewable energy has a potential to alleviate the GHGs. Since the elasticity between fossil energy consumption and emissions is mostly below unity, however, reducing fossil energy consumption and increased renewable energy usage will not be a solution by itself. Therefore, Ridge regression results indicate that policies seeking to promote renewable energy should be complemented with energy efficiency efforts to combat global change