Oil price shocks and renewable energy transition: Empirical evidence from net oil-importing South Asian economies

Abstract

This paper makes a novel attempt to model the nonlinear association between renewable energy consumption and crude oil prices concerning four net oil-importing South Asian economies: Bangladesh, India, Pakistan and Sri Lanka. Using annual data from 1990 to 2018, the long-run elasticity estimates confirm the nonlinear nexus and suggest that although rising crude oil prices do not facilitate renewable energy consumption initially, upon reaching a threshold level of crude oil price, further hikes in the oil prices are likely to elevate the renewable energy consumption figures. The estimated real oil price threshold, in this regard, is predicted to be around 135 US dollars per barrel, which is way above the prevailing oil price level. Identical nonlinearity is also confirmed in the context of the oil prices and renewable energy share in total final energy consumption volumes. Moreover, the nexus between renewable electricity share in aggregate electricity outputs and crude oil prices is also seen to exhibit nonlinearity. However, rising crude oil prices were not found to enhance the renewable electricity shares. Besides, the causality results implicated that movements in crude oil prices influenced the renewable energy transition process across the concerned South Asian economies. Thus, these results, in a nutshell, impose critically important policy implications for attainment of energy security and environmental sustainability in South Asia, particularly via curbing the traditional imported crude oil-dependencies of these nations.

Keywords

Renewable energy / Crude oil price / Renewable energy transition / South Asia / Cross-sectional dependency / Net oil-importing economies / Economics / Applied Economics

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The Joint Center on Global Change and Earth System Science of the University of Maryland and Beijing Normal University