Effects of Renewable Energy and Oil Prices on Environmental Degradation : A Comparative Analysis Between the U.S. and China

Lee, Wen Hui and Dzul Hadzwan, Husaini and Lean, Hooi Hooi (2024) Effects of Renewable Energy and Oil Prices on Environmental Degradation : A Comparative Analysis Between the U.S. and China. In: Finance, Economics & Business Sustainability (FEBS) Conference 2024, 18-20 November 2024, Hilton Hotel , Kuching, Sarawak.

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Abstract

Renewable energy development is crucial in the U.S. and China as they are the two largest CO2 contributors in the globe. However, the motivation of energy transition depends on oil price fluctuations since oil constitutes the largest share of primary energy consumption. As the two world’s largest oil importers, the U.S. and China are highly sensitive to the volatility of oil prices. Nevertheless, environmental behaviours of renewable energy consumption in each country reacts to oil prices differently due to distinct trade structure of oil and development of disaggregated renewable sources. Therefore, this paper assesses the juxtaposition between the two economies in renewable energyenvironment interplay at aggregate and disaggregated levels under the moderating channel of oil prices. The autoregressive distributed lag (ARDL) method is performed for the U.S. and China spanning from 1980 to 2022. \While the moderating role of oil prices is absent in the U.S., oil prices are found to enhance the mitigating effects of all renewable energy sources on CO2 emissions in China, except wind energy. Policy implications include the reduction of oil dependence to speed up the energy transition for the U.S. and the progressive development of renewable energy as a hedging mechanism for the volatile oil market.

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