The Impact of Renewable Energy Development on Carbon Emission Reduction

Abstract

Ongoing concerns about climate change have made renewable energy sources as an important topic of research in world energy consumption. Several scholars have applied different methodologies to examine the relationship between the energy consumption and economic growth of individual countries and groups of countries in order to analyze the effects of energy policies. Moreover, previous studies have analyzed carbon emission savings made by using renewable energy usage as an individual source or in combination with traditional sources of energy (e.g., hybrid plants) by applying life-cycle analysis method. Previous research has shown that after a certain period, economic growth leads to the promotion of environmental quality. However, econometric critiques have opposed the results of these studies. Moreover, the effectiveness of governance-related parameters has been neglected. In this research, we analyze the impact of renewable energy development on carbon emission reduction. In this regard, we discussed a market design for trading electricity generated by renewable energy sources in order to enhance the deployment of renewable energy. Distributed power generation, which is the basis of renewable energy production, encourages the production of renewable energy resources and, decreases transmission loss, increases saving energy, and enhances energy efficiency. Therefore, the integration of distributed, renewable energy sources and smart grids within local marketplaces that trade renewable energy in small units is a promising combination. We propose a marketplace for renewable energy sources, design a market mechanism for trading in this market, and outline the requirements for this market to function. We also estimate a model to evaluate the effectiveness of renewable energy development, technological innovation and market regulations in carbon emission reduction. For this purpose, we apply a panel data model to the EU-15 countries from 1995 to 2010 to investigate this relationship. Furthermore, we calculate the elasticities of CO2 emissions in order to evaluate the effectiveness of each parameter. Our finding showed that the effects of climate change could be mitigated by governance-related parameters instead of economic development.