The alternative energy utilization and common regional trade outlook in EU-27: Evidence from common correlated effects

Abstract

The role of low-carbon energy and trade on the environment has drawn several studies that have looked at issues from different perspectives, thus yielding differing conclusions. Considering the current emphasis on the COP25 conference and the commitment to cut down carbon emissions level, this study also draws strength from the United Nations Sustainable development Goals (UNSDGs) that comprises of positive strides for access to clean and responsible energy consumption (SDGs 7, 12) and climate change mitigation issues (SDG-13). To this end, this study is a timely outlook that underpins the case of the European Union (EU) countries as well as the root cause of anthropogenic activities on clean trajectory of global environment. Hence, we investigate the connection between alternative and sustainable energy source, trade, income and emissions in 27 selected European Union economies by utilizing data covering the period 1990–2017 on an annual frequency. We used second-generation panel model estimators to analyze the relationship between the variables in the long-run. Specifically, the long run results from the MG (Mean Group), AMG (Augmented Mean Group), and CCEMG (Common Correlated Effects Mean Group) estimators reveal that sustainable and alternative energy sources have a negative significant impact on pollutant emissions while trade and income have a positive impact on carbon emissions except that the impact of trade is insignificant. Although the positive impact of openness in trade on carbon emission is insignificant, the positive impact suggests that the free-trade policy that is currently in place in the EU should further incorporate sustainable development goals (SDGs) to avoid the outsourcing of carbon emissions among the member countries. Causality tests reveal a feedback hypothesis between renewable energy, income, trade, and carbon emanations. The investigation proposes expanded utilization of sustainable power source to mitigate carbon emissions in the European Union.