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The moderating role of renewable and non-renewable energy in environment-income

nexus for ASEAN countries: Evidence from Method of Moments Quantile Regression

Ahsan Anwar, Muhammad Siddique, Eyup Dogan, Arshian Sharif

PII: S0960-1481(20)31553-6
DOI: https://doi.org/10.1016/j.renene.2020.09.128
Reference: RENE 14277

To appear in: Renewable Energy

Received Date: 12 April 2020

Revised Date: 24 July 2020
Accepted Date: 26 September 2020

Please cite this article as: Anwar A, Siddique M, Eyup Dogan , Sharif A, The moderating role of
renewable and non-renewable energy in environment-income nexus for ASEAN countries: Evidence
from Method of Moments Quantile Regression, Renewable Energy (2020), doi: https://doi.org/10.1016/
j.renene.2020.09.128.

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Credit Author Statement:

Eyup Dogan: Supervision, Conclusion; Ahsan Anwar: Introduction, Literature Review;

Muhammad Siddique: Empirical Results, Method; Arshian Sharif: Model, Data, Review

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The moderating role of renewable and non-renewable energy in environment-income nexus
for ASEAN countries: Evidence from Method of Moments Quantile Regression

Ahsan Anwar
Department of Economics
National College of Business Administration and Economics,
Lahore, Pakistan

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Email: ahsananwar786@gmail.com

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Muhammad Siddique
Department of Economics
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National College of Business Administration and Economics,
Lahore, Pakistan
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Email: muhammadsiddique990@gmail.com
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Eyup Dogan (*corresponding author*)

Department of Economics, Abdullah Gul University
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Kayseri, Turkey
Email: eyup.dogan@agu.edu.tr
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Arshian Sharif
Othman Yeop Abdullah Graduate School of Business
Universiti Utara Malaysia
Sintok, Malaysia.
Email: arshian.aslam@gmail.com
 1 Abstract

2 A vast body of studies estimates the impact of energy consumption on the environment. A
3 typical empirical study either use aggregate energy consumption or apply conventional
4 econometric techniques in modelling the nexus of energy, income and environment. To
5 correct these gaps, the objective of the study is to use renewable and non-renewable energy
6 consumption in analyzing energy-income-environment nexus, and to apply the novel Method
7 of Moments Quantile Regression for ASEAN countries. The outcomes indicate that non-
8 renewable energy consumption stimulate carbon emissions across all quantiles (10th to 90th),
9 the value of the 10th quantile is 0.257 which rises to 0.501 till 90th quantile. Whereas, the
10 renewable energy consumption leads to a decrease in CO2 emissions across all the quantiles

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11 (10th to 90th) but this association is statistically insignificant at higher quantiles from 60th to

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12 90th. The empirical outcomes also verify the presence of the environmental Kuznets curve
13 relationship, which is statistically significant from the middle (30th) to higher (90th) quantiles.
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Moreover, the finding of panel estimation approaches (FMOLS, DOLS, FE-OLS) also verify
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15 the existence of the EKC hypothesis in ASEAN countries. Their finding also describes that
1% increase in non-renewable energy consumption increase CO2 emission by 0.29%, 0.26%
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17 and 0.30% whereas 1% increase in the usage of renewable energy reduces CO2 emission by
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18 0.17%, 0.15% and 0.17% in case of FMOLS, DOLS and FE-OLS respectively. The empirical
19 results conclude that the government should encourage and subsidize the sources of green
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20 energy to tackle environmental degradation. More policy implications are further discussed in
21 the study.
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22 Keywords: Renewable energy consumption; Non-renewable energy consumption; EKC

23 hypothesis; Method of Moments Quantile Regression; ASEAN

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32 1. Introduction

33 Climate variation is comprehended as one of the major coercions for the living beings on
34 the earth, disturbing extensively sea to atmosphere and land, and from tropical to cold
35 regions. Climate change is primarily credited to the huge consumption of fossil fuels. Among
36 all greenhouse gases (GHG), CO2 emissions are a major contributor that leads to enhance
37 global-warming and continues to gain academic consideration (Baek, 2016; Sarkar et al.,
38 2015; Tunc et al., 2009; Paula and Bhattacharya, 2004). CO2 emissions have increased day by
39 day due to increasing economic growth, increasing demand of energy (Sharif et al. 2019;
40 Sharif et al. 2020; Shahbaz et al., 2017; Asumadu-Sarkodie and Owusu, 2017; Adom et al.,
41 2012; Zhang and Lin, 2012; McAusland, 2010; Funk and Brown, 2009).

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42 Energy consumption is considered as the foremost device for the progression of

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43 economic-development (Sharif et al. 2017; Poumanyvong et al., 2012; Warr and Ayres,
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2010). As energy performs a significant part in generating jobs, commerce, transport,
agriculture and economic development. It is also the main tool for sustainable human
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46 development and eradicating poverty (Karekezi et al., 2012). Energy is also considered as a
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47 main factor of production. Traditional causes of energy (i.e., natural gas coal, & oil) are
48 regarded as the best catalysts of economic growth, and their demand has been swiftly
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49 increased in the last decades due to economic and social developments (Ellabban et al., 2014;
50 Aslan et al., 2014). The world’s energy demand was increased 6,264 MTOE to 9,791 MTOE
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51 from 1990 to 2017. The proportion of coal, natural gas and oil are 10.42 percent, 15.34
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52 percent and 40.54 percent respectively to meet this demand in 2017. In other words,
53 traditional energy sources met 66.3 percent of the world's energy requirements in 2017 (IEA,
54 2019). Though, the world's reliance on conventional energy sources has carried several
55 worldwide issues. Today the most fundamental global issues are the nature of coal, natural
56 gas and oil as sources of nonrenewable energy, energy price shocks, energy dependence and
57 security of supply, independence and security of supply, and global warming (Sadorsky,
58 2009). Therefore, such issues forced societies to transfer their dependence from the traditional
59 source of energy to alternative or modern energy sources (Bilgili and Ozturk, 2015). Karekezi
60 et al. (2012) believed that Millennium Development Goals (MDGs) can also be attained
61 through a sustained and sufficient supply of modern form of energy.

62 In the current era of energy-based economies, the attention of the rich and poor countries
63 moves towards the topic of renewable energy sources (Ellabban et al., 2014; Wei et al., 2017).

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64 A form of renewable energy sources that is responsible for nominal environment degradation
65 can be classified as wind, waves, rain, geothermal heat, sunlight, etc. (Bilgili et al., 2016).
66 These resources are also known as green energy sources Green energy produces energy in
67 four different sectors. These sectors are categorized as air & water, services in rural areas and
68 transportation. According to World Bank, the contribution of the renewable energy sources
69 (including biomass, tides, solar, biofuels, geothermal and hydro-electric) in the total
70 electricity production of the ASEAN countries (Thailand, Singapore, Indonesia, Malaysia,
71 Philippine, Vietnam) is almost 16% (World Bank, 2019).

72 Economic growth has a momentous impact on economic development as well as on

73 human development (Hanif and Gago-de-Santos, 2017). In the current era of development,

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74 developing economies have been putting their efforts to boost their industrialization process

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75 by enhancing their energy-consumption to produce better goods and services (Salim et al.,
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2014; Paramati et al., 2017; Paramati et al., 2018). Many emerging economies of the world
have deeply indulged themselves to get higher production ranks in the regions but they have
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78 failed to get desired protection or safety measures to control CO2 emissions (Persson et al.,
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79 2006). Many developing economies are facing crucial challenges such as high unemployment,
80 inflation, poverty level rapid population growth, low per capita, and slower industrialization
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81 for the sake of economic development. To cope with these issues, the more efforts to boost
82 production and GDP per capita, the consequences are these efforts are more natural resource
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83 depletion, environmental degradation and global warming (Hanif and Gago-de-Santos, 2017;
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84 Friedl and Getzner, 2003). As a higher level of production requires larger sources of energy.
85 To upsurge economic growth in developing economies, they struggle to use nonrenewable
86 energy resources which is available relatively in higher proportion (Hanif, 2018; Mudakkar et
87 al., 2013).

88 A fundamental objective of this study is to understand the association between energy

89 consumption, carbon emissions by sources and income for ASEAN countries. The motivation
90 behind the selection of these countries are; first, these economies in terms of the population
91 come after the India and China with a total population of six hundred fifty-four million while
92 the total GDP of ASEAN countries reached to 3.1 trillion US dollars. In this regard, we can
93 realize that three giants are taking the lead, Indonesia with $1,111.7 billion, Thailand with
94 $529.2 billion and the Philippine with $365.3 billion. Consequently, the total GDP of
95 Malaysia, Singapore and Vietnam is 362.8, 356.8, 261.6 billion dollars respectively (IMF,
96 2019). Consequently, high economic growth is accountable for high-rise emissions of CO2

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 97 (Andreoni and Galmarini, 2016; Batool et al. 2019; Mishra et al. 2019). Several empirical
98 studies provide evidences that GDP is one of the significant indicators to boost energy
99 demand in the form of electricity (Balcilar et al., 2019; Wang et al., 2018; Ameyaw et al.,
100 2016; Sohag et al., 2015; Aslan, 2014; Hamdi et al., 2014). The ASEAN nations are in the
101 line of highest energy consumer countries of the world (World Bank, 2019). The abundant
102 natural resources and economic policies of these countries draw the attention of foreign
103 investors. Therefore, ASEAN stands out as one of the rapid regions of emerging economies in
104 the world (Yu, 2003). In this regard, the eminent economies of ASEAN countries deserve to
105 be studied.

106 Numerous researchers in their research have studied the association energy-income-

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107 environment nexus by considering of several ASEAN nations (Such as, Chontanawat, 2020;

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108 Wang et al., 2016; Heideri et al., 2015; Saboori and Sulaiman, 2013). An important drawback
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of the existing studies is that their findings are mixed. A significant weakness of the prior
studies for ASEAN nations is that these studies depend upon the presumption that disturbance
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111 terms are independent and no cross-sectional dependence (CD) amongst mentioned variables
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112 across the nations. The nature of these variables may be as spillover, common or unobserved
113 shocks, or a combination of all such sources (Chudik and Pesaran, 2013; Breitung and
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114 Pesaran, 2005; Andrews, 2005; Cerrato, 2001). As a cross-sectional group of ASEAN
115 economies are probably to be commonly dependent to increase economic integration, which
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116 makes it imperative to have CD in the study. ASEAN nations are particularly vulnerable to
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117 joint shocks that affect economic growth also energy consumption, for instance, international
118 financial crises and oil price shocks. Andrews (2005) believes that the results of the
119 connection between energy, income and environment will be bias and inconsistent if the CD
120 is ignored in a study.

121 In light of above-mentioned discussions and considerations, this study contributes to the
122 existing literature in three-fold. First, as far as we are aware, this is the first attempt to study
123 the association between non-renewable energy consumption, renewable energy consumption,
124 income and carbon emissions by using the novel “Method of Moments Quantile Regression”
125 (MMQR) for ASEAN economies. Second, this study contributes to thin body literature that
126 adopts the MMQR (Machado and Silva, 2019). An experiential understanding of the
127 heterogeneity of the association becomes easier by incorporating this methodology with fixed
128 effects. This methodology also permits heterogeneous energy-emissions connections at
129 various conditional quantiles distribution, whereas conventional mean regressions are unable

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130 to capture such effects. Subsequently, a detailed analysis of the EKC hypothesis in ASEAN
131 economies is estimated. Third, this study uses disaggregated energy consumption in
132 modelling nexus of energy-income-environment in the framework of the EKC hypothesis for
133 the analyzed countries. There are several reasons behind the assessment of Environmental
134 Kuznets’s Curve (EKC) hypothesis at several quantiles: i) Contrasting the assessments of
135 conditional-mean. These assessments are susceptible to mislead the impacts of outliers
136 originating from the endogenous variables due to the more vigorous conditional quantiles
137 (Kenker, 2004); ii) Especially in case of panel regression, the quantile regression is
138 particularly attractive because it has an additional intuitive application; iii) Due to the
139 distributional impacts of the exogenous factors on the endogenous factors at various quantile

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140 ranges. Conditional mean estimation, on the other hand, unable to describes the full
distributional effect of income on emissions. In this manner, it gets simpler to categorize the

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142 heterogeneous impacts of the groups of heterogeneous cross-sections.

143 2. Literature Review

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144 The importance of energy cannot be denied as it is considered the mainstay of social well-
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145 being and development of the economy. Ajmi et al. (2015) inspected the connection among
146 energy usage and emissions of CO2 in G-7 nations. The discoveries of Granger causality
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147 proposed the way of causality between the factors for the US, runs in the two bearings all the
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148 while. Be that as it may, for France, the study found a unidirectional relationship from energy
149 usage to CO2 emanation. Asumadu-Sarkodie and Owusu (2017a) explored association amid
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150 economic growth, energy usage and quality of the environment for Senegal. The empirical
151 outcome shows that usage of energy increases pollution whereas income has a negative
152 impact on environmental deterioration. They recommended that the utilization of green
153 energy can increase the quality of the environment. Saboori et al. (2017) explored connection
154 amongst oil usage, income and natural environment for three Asian economies over the period
155 1980-2013. The outcomes of the examination stated that oil usage is a cause of CO2 in South
156 Korea whereas in China and Japan one-sided causality from oil usage to economic growth
157 exists. Sulaiman and Abdul-Rahim (2017) estimated the link between energy utilization,
158 income and environmental pollution in the case of Malaysia from 1975-2015. The outcomes
159 concluded that energy utilization and GDP are progressively affected by carbon emissions.

160 Though, renewable energy is useful to the safe future of the natural environment. It is also
161 vital for sustainable growth, which is only possible in the case of a modern form of energy.

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162 Baek (2016) documented that usage of renewable energy has an adverse influence on CO2
163 emissions in the US. By using the Toda Yamamoto technique in a recent examination, Khan
164 et al. (2018) reported that green energy significantly reduces environmental pollution in
165 Pakistan. The outcomes of the study advised that the government should increase the use of
166 green energy to reduce GHG emissions. Similar results found by Bhat (2018) for BRICS
167 economies during 1992-2016. He also found that the utilization of green energy can improve
168 the quality of the environment. He concluded that the policy advisors of BRICS nations
169 should implement such energy policies that support sustainable growth. Subsequently, Liu et
170 al. (2017) studied linkage amongst renewable energy and non-green, agriculture and pollution
171 for economies of BRICS. The outcomes of the examination verified green energy performs a

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172 negative role in pollutant emissions. Farhani and Shahbaz (2014) analyzed the connection
between environmental pollution, output and usage of electricity produced from sources of

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174 green and non-green in the case of ten MENA nations. They concluded that electricity from
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both green and non-green sources contributes to CO2 emissions. Afterward, Apergis and
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176 Payne (2015) verified the similar outcomes by using the data of 11 South American
177 economies.
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178 Furthermore, there are innumerable studies that explored no connection amongst green
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179 energy and environmental pollution. For Instance, Jebli et al. (2016) explored no causation
180 link amongst the utilization of CO2 emissions and green energy for 25 OECD countries. By
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181 using the data of Italy, Bento and Moutinho (2016) failed to identify any significant result
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182 between electricity usage produce from renewable sources and carbon emissions. Bootome et
183 al. (2017) found a neutral association between environmental deterioration and renewable
184 energy utilization for Thailand over the period from 1971-2013. Saidi and Mbarek (2016)
185 analyzed that the usage of green and nuclear energy in nine advanced economies has no
186 causal connection with carbon emanation during 1990-2013. Riti et al. (2017) inspects the
187 link of CO2 discharges, financial development, and energy utilization in China. The outcomes
188 of the study demonstrated irregularity in the turning point of the EKC. The last's irregularity
189 may be inferable among others to various variable choices and sources of data incorporated in
190 various examinations. In the case of Pakistan during 1971-2009, Shehbaz et al. (2012)
191 examine the connection between economic growth, trade openness, discharge of CO2 and
192 energy usage. The empirical outcomes verify the EKC hypothesis and confirm long-term
193 association amongst variables, in the case of Pakistan. Isik et al. (2017) explored that
194 economic growth has a progressive influence on environmental pollution in the case of

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195 Greece. Cai et al. (2018) examined links amongst economic growth, green energy, and carbon
196 emissions for G-7 economies. The authors found cointegration only in two countries (Japan
197 and Germany) out of seven countries under specific circumstances. After analyzing the annual
198 data of Tunisia, Cherni and Jouini (2017) suggested that green energy could be utilized as an
199 option in contrast to regular energies to decrease GHG emissions.

200 The literature provides evidence that association amongst energy usage and economic
201 growth has been extensively examined (Kocak and Sarkgunesi, 2017; Kahia et al., 2016;
202 Rafindadi and Ozturk, 2016; Alper and Oguz, 2016; Dogan, 2016; Inglesi-Lotz, 2015). Ito
203 (2017) analyzed the panel data of 42 underdeveloped economies for 2002-2011. He explored
204 that non-renewable energy negatively whereas renewable energy positively associated with

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205 economic growth. By taking the data of 80 economies, Apergis and Payne (2012) reported

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206 two-way causality among economic growth, utilization of non-green and green energy. While
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208 economic growth.
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209 When an economy starts to grow then at the preliminary phase of economic development,
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210 quality of environment deteriorates due to water and soil contamination, deforestation, air
211 pollution and numerous other factors. But after some time, with further economic
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212 development the quality of the environment starting to improve. This phenomenon amongst
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213 economic growth and environment is named as EKC hypothesis. The number of studies
214 proved such a hypothesis in different regions and countries. Seker et al. (2015) claimed the
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215 presence of EKC during 1974-2010 in the case of Turkey. They also suggested that FDI and
216 usage of energy have a progressive impact on carbon emanation. For India from 1971-2014,
217 Ahmad et al. (2016) analyzed that energy usage is positively associated with environmental
218 pollution, they also verify the occurrence of the EKC hypothesis in India. In a study, Tang
219 and Tan (2015) proved the existence of the EKC hypothesis in the case of Vietnam from 1976
220 to 2009. They also found that energy usage is negatively attached to quality of the
221 environment. By using the panel OLS technique, Jobert et al. (2011) explored the EKC
222 hypothesis in 55 countries. Conversely, numerous studies suggest that the absence of the EKC
223 hypothesis in different countries. Such as, for SAARC countries during 1960-2015, Rehman
224 and Rashid (2017) have used FMOLS and DOLS approaches and claimed that there is no
225 EKC hypothesis exists in these countries. Similarly, Pal and Mitra (2017) examined the N-
226 shaped association between output and carbon discharge for India and China during 1971-
227 2012. Moreover, Moghadam and Dehbashi (2018) explored linkage among financial

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228 development, trade, quality of environment and output, but they unable to found the EKC
229 hypothesis for Iran during 1970-2011.

230

231 Table: 1

Study Variables Country/ies Findings of the study

Time Period and

Econometric Approach

Ajmi et al. (2015) CO2, GDP, NEC G-7 states Bi-directional causality

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exists between all the
1960-2010 variables.

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Time-varying Granger
causality approach

Asumadu-Sarkodie and Financial

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Senegal Financial development,
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Owusu (2017) Development, energy consumption and
electricity energy 1980-2011 industrialization increase
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consumption, CO2 whereas urbanization

Nonlinear iterative partial
urbanization, and GDP diminish it.
least squares (NIPLS)
industrialization, GDP,
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CO2.

Saboori et al. (2017) Oil consumption, GDP South Korea, Japan, China Oil consumption is a
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and CO2. cause of CO2.

1980-2013
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Granger Causality

Sulaiman and Abdul- CO2, GDP, NEC Malaysia NEC and GDP increase
Rahim (2017) CO2.
1975-2015

ARDL

Baek (2016) REC, CO2, GDP United States REC reduces CO2.

1960-2010 EKC exist.

ARDL

Khan et al. (2018) CO2, REC, Pakistan REC, Agriculture value

Agricultural value- added and Forest area
added, Forest area. 1981-2015 reduces CO2.

FMOLS

Bhat (2018) Energy consumption, BRICS countries NEC, the GDP population
GDP, CO2 increases CO2 and REC

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 1992-2016 decreases CO2.

Generalized Method of
Moments

Liu et al. (2017) REC, NEC, GDP, BRICS countries REC and GDP decrease
agriculture and CO2. CO2. NEC increases CO2.
1992-2013

Panel OLS, FMOLS, DOLS.

Farhani and Shahbaz REC, NEC, GDP, CO2 10 MENA countries REC and NEC increases
(2014) CO2.
1980-2009
EKC exists.
FMOLS, DOLS

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Apergis and Payne REC, GDP, CO2, Oil 11 South American countries Two-way causality exists
(2015) prices. between all indicators.
1980-2010

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Panel causality

Jebli et al. (2016) CO2,

NEC,
GDP, REC,
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25 OECD countries NEC increases CO2.
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trade 1980-2010 International trade and
REC reduce CO2
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FMOLS
EKC exists.
DOLS
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Bento and Moutinho GDP, Non-renewable Italy Renewable electricity

(2016) electricity production, production reduces CO2,
Renewable electricity 1960-2011 international trade
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production, increase CO2, EKC exists

ARDL
international trade,
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CO2

Boontome et al. (2017) NEC, REC, GDP, Thailand NEC increases CO2.
CO2.
1971-2013

Johnsen cointegration

Granger Causality

Saidi and Mbarek (2016) Nuclear energy 9 developed countries Nuclear energy
consumption, REC, consumption and REC
GDP, CO2 1990-2013 reduces CO2. GDP
increases CO2.
FMOLS, DOLS

Riti et al. (2017) Energy consumption, China Energy consumption

GDP, CO2. increases CO2,
1970-2015
EKC exists.
ARDL, FMOLS, DOLS

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Shahbaz et al. (2012) Energy consumption, Pakistan Energy consumption
GDP, trade openness, increases CO2, trade
CO2 1971-2009 openness decreases CO2,
EKC exists
ARDL

Isik et al. (2017) GDP, financial Greece countries GDP, financial

development, development,
international trade, 1970-2014 international trade, and
tourism expenditure, tourism expenditure
ARDL
CO2. increases CO2.

Cai at al. (2018) Renewable energy G-7 countries Green energy reduces
consumption, GDP, CO2. Cointegration exists
CO2. 1965-2015 only in 2 countries out of
seven.
Bootstrap ARDL

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Cherni and Jouini (2017) CO2, REC, GDP. Tunisia REC impedes CO2.

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1990-2015

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ARDL
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Seker et al. (2015) Foreign direct Turkey EKC exists.
investment, GDP,
energy usage, CO2. 1974-2010 Foreign direct investment
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and energy usage

ARDL increases CO2.
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Ito (2017) REC, NEC, GDP, 42 Developing countries. REC increase CO2, NEC
CO2. decreases CO2.
2002-2011
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Generalized Method of
Moments
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Ahmad et al. (2016) Energy consumption, India EKC exists.

GDP, CO2.
1971-2014 Energy Consumption
increases CO2.
ARDL

Ozatac et al. (2017) Energy consumption, Turkey EKC exists.

Financial
development, Trade, 1960-2013 Energy usage, Financial
urbanization, GDP, development, trade,
ARDL urbanization increases
CO2.
CO2.

Tang and Tan (2015) Energy consumption, Vietnam EKC exists.

Foreign Direct
Investment, GDP, 1976-2009 Energy consumption
CO2. increases CO2. FDI
ARDL reduces CO2.

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 Jobert et al. (2011) Energy Consumption, 55 countries EKC exists.
GDP, CO2.
1970-2008

OLS

Rehman and Rashid GDP, Population, SAARC seconomies No EKC.

(2017) Energy consumption,
CO2. 1960-2015

FMOLS, DOLS

Pal and Mitra (2017) GDP, Trade, Energy India, China No EKC.
usage, CO2.
1971-2012

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Moghadam and Dehbashi Trade, GDP, Financial Iran No EKC.
(2017) development, CO2.

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1970-2011

ARDL
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232 3. Data and Methodology
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233 Inspired by recent studies Apergis and Payne (2010), Dogan and Seker (2016a), and
234 Ehigiamusoe et al. (2020), the model is as follow:
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235 CO2it = f (GDPit, GDP2it, NECit, RECit)

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236 The variables CO2, GDP and GDP2 represent carbon dioxide emissions, gross domestic
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237 product, and the square of gross domestic product, respectively. Moreover, CO2 emission is
238 measured in million metric tons while GDP and GDP2 are in constant US dollars. The data of
239 these variables are acquired from World Development Indicators (World Bank, 2019). The
240 proxy used for renewable energy consumption (REC) is the consumption of hydroelectricity,
241 nuclear, wind and solar whereas the consumption of natural gas, coal and oil are used as a
242 proxy for non-renewable energy consumption (NEC). The data on NEC and REC (measured
243 in million tons per capita) are obtained from the statistical database (BP Statistical Review,
244 2019). The current study uses the data for ASEAN economies over the period from 1990-
245 2018. Each variable is taken as real per capita.

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247

248 Figures 1 and 2 describing the trend of CO2 emission and GDP per capita of ASEAN
249 economies. In figure 1, it is seen that the CO2 emission increases with the same pattern in
250 Vietnam. Thailand and Singapore but Vietnam emit a huge amount of carbon emission as
251 compared to all other ASEAN countries. Figure 2 shows that Vietnam has the highest GDP
252 per capita whereas Indonesia has the lowest GDP per capita as compared to other ASEAN
253 economies. But all ASEAN countries have a positive increasing trend of GDP per capita.

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254

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255

256 Figures 3 and 4 presenting the trend of renewable and non-renewable energy
257 consumption. It is seen that the in both the figures, all ASEAN economies have an increasing
258 trend in renewable and non-renewable energy consumption but Indonesia has a very slow rate
259 of energy consumption in both cases. However, Vietnam is the highest energy-consuming
260 country in both types of energies.

261 3.1. Panel Estimation Techniques

262 Fully Modified Ordinary Least Square (FM-OLS), Dynamic-OLS and Fixed-Effect-OLS
263 methods have been employed for comparative purposes. Pedroni (2004) FM-OLS model
264 comprises individual intercepts that permit for heterogeneous serial-correlation, across
265 distinct members of the panel. The D-OLS was introduced by Kao and Chiang (2001) to make

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266 an unbiased comparison between FMOLS and OLS estimates in restricted samples. The D-
267 OLS method is based on the Monte-Carlo simulation to control endogeneity through the
268 augmented of lag differences. The FE-OLS estimator is amplified as per Driscoll and Kraay
269 (1998) standard errors (SE). These are useful to robust each cross-sectional dependence and
270 auto-correlation up to the specific lag length. Due to curbs in the above mentioned panel
271 techniques, quantile-regression (QR) estimator was used to assess the heterogeneous and
272 distributional effects across each quantile (Sarkodie and Strezov, 2019). This technique was
273 introduced by Koenker and Basett (1978). Normally, this methodology is employed to
274 evaluate the conditional-median of various responded quantiles. Therefore, PQR is more
275 vigorous to the prevalence of outliers in the estimations, and are also useful to explain the

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276 weak association of conditional means of two variables (Blinder and Coad, 2011). However,
Machado and Silva (2019) introduced an augmented PQR (known as Methods of Moments-

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278 Quantile-Regression (MMQR) technique considering fixed-effects. This is useful to detect the
279
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covariance effects under conditional heterogeneity as a determinant of CO2 emissions. This
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280 tool also tolerates the individual-effect to affect the whole distribution instead of fluctuating
281 means amongst the others (Koenker, 2004; Canay, 2011). This technique is also advantageous
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282 in that sense where the model possesses endogenous independent variables and entrenches
283 with individual-effect. The following model is used to estimate conditional quantiles Qy (δ|
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284 Ẍ΄it):
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285 Ẏit= ἀi + Ẍ΄it Φ + ( ƛi+ Ƶ΄it Ψ) Ṻit (1)

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286 where, the probability, Ϸ {ƛi + Ƶ΄it Ψ >0} =1, and the parameters (ἀ, Φ, ƛ, Ψ) ΄ are to be
287 assessed. (ἀi, ƛi ), i = 1,2, 3 up to n, describes the discrete i fixed-effects whereas Ƶ represents
288 k-vector of recognized modules of Ẍ, and are distinguishable alterations with j as follow:

289 Ƶj= Ƶj (Ẍ), j = 1,2,… ,k (2)

290 Ẍ΄it and Ṻit are identically dispersed beyond individuals i and time-period (t). According to
291 Machado and Silva’s (2019) standardized momentum conditions Ṻit are orthogonal to Ẍ΄it .
292 Thus, Equation (1) suggests the following;

293 Qy (δ| Ẍ΄it) = (ἀi + ƛi q(δ) )+ Ẍ΄it Φ+Ƶ΄it Ψ q (δ) (3)

294 From the above equation, Ẍ΄it is a vector of descriptive variable and expressed as the natural
295 logarithm of each observed variable in per capita i.e., nonrenewable energy consumption,
296 renewable electricity consumption, GDP and squared GDP as LNEC, LREC, GDP, LGDP,

15
297 and LGDP2 respectively. Qy (δ| Ẍ΄it) represents the quantile-distribution of Ẏit; LCO2 which
298 is restrictive on the position of explanatory variable Ẍ΄it. ἀi (δ)≡ ἀi + ƛi q (δ); the scalar to
299 reveal quantile-δ` fixed-effects for across individual i. q (δ) designates sample quantile. This
300 is assessed by resolving optimization as follow;

301 Minq = ∑ ∑ ἠδ (Ȑ it − (ƛi+ Ƶ΄it γ) q) (4)

302 Where ἠδ (Ȑ)= (δ − 1) ȐȊ {Ȑ≤ 0} + TȐȊ {Ȑ>0} represents the checked function.

303 4. Discussion Section

304 In this section, we explain the results, initially, Table 2 shows the statistical properties of all

of
305 the selected factors (i.e., maximum, minimum, mean, and standard deviation). The value of
306 the mean of CO2, GDP, NEC and REC are 4.08, 9696.48, 3.68 and 0.034 respectively. All

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307 the factors of this study show an impressive level of standard deviation as 3.89, 144434.49,
308
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4.08 and 0.039 for CO2, GDP, NEC and REC respectively. The descriptive characteristics of
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309 the factors allow us to move towards the unit root test.
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Table-2: Results of Descriptive-Statistics

Variables CO2 GDP NEC REC
na

Mean 4.085 9696.483 2.689 0.034

Minimum 0.303 449.537 0.074 0.000
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Maximum 18.041 58247.870 15.482 0.192

Std. Dev. 3.895 14434.490 4.088 0.039
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Observations 174 174 174 174

Source: Author’s Calculation

310

311 We employ some of the standard preliminary tests to check the time-series characteristics
312 of variables before approximating unknown parameters. So, we apply Im, Pesaran and Shin
313 (2003), an IPS-unit root test that permits individuals to have their distinct autoregressive
314 parameter. In light of the unpredictability of real economic phenomena, the economic
315 variables are most of the time non-stationary. If regression estimation based on non-stationary
316 data then it will produce spurious results. Accordingly, before assessing the regression model,
317 we tried whether the factors utilized in the model are steady. From Table 3, it’s clear that each
318 variable is stationary at first difference instead of the level at a 1% level of significance.

319

16
 Table-3: Results of Stationary Analysis: IPS-unit root test
I(0) I(1)
Variable
C C&T C C&T
LCO2 -0.326 -0.358 -6.857*** -7.112***
LGDP -1.084 -1.189 -9.373*** -9.722***
LNEC 0.261 0.286 -6.849*** -7.104***
LREC 0.884 0.970 -9.254*** -9.598***
***, ** and * represent 1%, 5% and 10% significant level respectively.
Source: Author’s Calculation

320 Pesaran (2004) suggested CD-test estimate the dependency of cross-sections within
321 the panel. The CD can disturb the exact parametric values of estimations and may obtain as a

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322 consequence of ignored factors that can decrease the efficiency of panel data if neglected

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323 (Phillips and Sul, 2003). Table 4 describes the outcomes of CD and CIPS tests of a unit root.
324
325
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The outcomes of the CD test reject the null hypothesis. And also verify cross-sectional
dependence of variables. Whilst, outcomes of the CIPS test explore that all factors are
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326 stationary at first difference. These outcomes verify the occurrence of the cointegration
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327 amongst factors.

Table-4: CD and CIPS unit root test

na

CIPS test
Variables CD Test p-value
Level 1st difference
ur

LCO2 13.547 0.000 -0.255 -5.321***

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LGDP 17.472 0.000 -0.064 -17.451***

LNEC 22.647 0.000 -0.368 -12.269***
LREC 27.511 0.000 -0.180 -16.711***
***, ** and * describe significant level at 1%, 5% and 10% respectively..
Source: Author’s Calculation
328

329 The panel cointegration technique of Pedroni (2004) and the bootstrapped panel test of
330 Westerlund (2007) are employed to confirm the absence of long-run spurious association
331 amongst variables. Pedroni (2004) suggests a widespread framework for panel cointegration
332 by following Engle and Granger 2-steps process. For the purpose of controlling heterogeneity
333 Pedroni’s (2004) deterministic trends approach is adopted. After that step, Pedroni determines
334 seven various test-statistics to estimate Pooled (within-dimensions) tests for common
335 processes and grouped (between-dimensions) tests for individual processes. Unlike, Pedroni

17
336 test, Westerlund (2007) technique eases the assumption of common-factor restrictions on
337 tests. Four additional tests (explaining H0: no co-integration) are suggested by Westerlund. It
338 is necessary to maintain residual’s power-based cointegration in structural dynamics (Kremers
339 et al., 1992). Eliminating this constraint, short and long-run modification processes need not
340 to be equal. By using Westerlund’s boot-strapping technique, we can moderate the misleading
341 effects of CD procedure, and hence yield robust critical values.

Table-5: Panel cointegration in ASEAN countries

a) Pedroni Cointegration Stats. Prob.
CO2 = f(GDP + GDP2 + NEC + REC)- Panel
v-statistics 8.481 0.000

of
ρ-statistics 0.584 0.683

ro
PP-statistics -7.482 0.000
ADF-statistics -7.028 0.000

ρ –statistic
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Alternative hypothesis: individual AR coefficient- Group
1.028 0.746
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PP-statistic -7.421 0.000
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ADF-statistic -9.261 0.000

H0: no co-integration Pedroni (1999).
Source: Author’s Calculation
na

b) Westerlund (2007) bootstrap panel cointegration

ur

Statistics Value Z value p-value Robust p-value

Gt -20.035 -17.291 0.000 0.000
Jo

Ga -87.897 -71.860 0.000 0.000

Pt -92.812 -60.197 0.000 0.000
Pa -98.766 -87.765 0.000 0.000
H0 : No cointegration by Westerlund 2007 panel cointegration procedure. The number of one-sided p-
value based on normal distribution; replication is 500.
Source: Author’s Calculation.
342

343 Table 5 demonstrates the findings of Pedroni (1999) cointegration test that verify
344 association amongst the model’s parameters in the long-run. The result clarifies that three
345 tests of within dimension (Panel ADF, PP and v-statistics), and two, group statistics of
346 between-dimension (ADF and PP-statistics), support this dismissal. In this manner, five out of
347 seven tests conclude that there exists cointegration in the long run. Moreover, it also
348 represents the findings of bootstrap second-generation Westerlund’s (2007) test of panel-

18
349 cointegration. The outcome affirms that under-studied factors are cointegration in the long run
350 after the rejection of the null hypothesis of no cointegration. Overall, a long-run relation is
351 confirmed for non-renewable and renewable energy consumption, income, the square of
352 income and carbon emissions in Model in section 3.

Table-6: Results of Panel Estimation for ASEAN Countries

FMOLS DOLS FE-OLS
Variables
Coeff. t-stats Prob. Coeff. t-stats Prob. Coeff. t-stats Prob.
LGDP 0.414 5.639 0.000 0.370 5.036 0.000 0.421 5.736 0.000
2
LGDP -0.217 -3.968 0.000 -0.194 -3.543 0.000 -0.221 -4.036 0.000
LNEC 0.298 4.049 0.000 0.266 3.616 0.000 0.303 4.118 0.000

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LREC -0.174 -4.217 0.000 -0.155 -3.766 0.000 -0.177 -4.289 0.000
***, ** and * represent 1%, 5% and 10% level of significant respectively.

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Source: Author’s Calculation

353
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The results of different panel estimation approaches (i.e., FM-OLS, D-OLS, and FE-
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354 OLS) are designated in Table 6. These methods provide almost the same coefficient values.
355 The outcome shows that GDP positively and significantly influences CO2 emissions. 1%
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356 growth in GDP raises CO2 emissions by 0.41%, 0.37% and 0.42% in the case of FM-OLS, D-
357 OLS and FE-OLS respectively. The negative and significant sign of coefficients of GDP
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358 square in all three methods confirms the presence of EKC in ASEAN countries. This finding
ur

359 coincides with Khattak et al. (2020) for BRICS economies, Mountinho and Robania (2016)
360 for 20 European countries, Yang et al. (2017) for Russia, Katircioğlu and Taşpinar (2017) for
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361 Turkey, Danish et al. (2019) for BRICS economies, who report that at initial stages of
362 development the environmental pollution increases as economic growth increases but after
363 threshold point, environmental pollution starts to decline with the upsurge in economic
364 growth. Energy usage is directly correlated with CO2 emissions in all these approaches. As a
365 1% growth in NEC, upsurges CO2 emissions by 0.29% in the case of FMOLS, 0.26% in the
366 case of DOLS and 0.30% in the case of FE-OLS. This outcome is in line with Khan et al.
367 (2020) in the case of Pakistan, Dogan and Seker (2016b) in the case of 23 top renewable
368 energy countries, Javid and Sharif (2016) in case of Pakistan, who claim that non-renewable
369 energy consumption upsurges environmental pollution. The empirical outcomes explain an
370 inverse association between REC and CO2 emissions. As 0.17%, 0.15% and 0.17% reduction
371 are reported in CO2 emissions if REC increases by 1% in the case of FM-OLS, D-OLS and
372 FE-OLS respectively. This result corroborated by Akram et al. (2020) for 66 developing
373 countries, Khattak et al. (2020) for BRICS economies, Cheng et al. (2019) for BRICS

19
374 economies, Dong et al. (2018) for China and Dogan and Seker (2016a) for European Union,
375 who indicate that green energy lessens carbon emissions.

Table-7: Results of Panel Quantile Estimations

Method of Moments Quantile regression (MMQR)

Quantiles

Variable Locatio
Scale 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
s n
0.373***

0.332***

0.361***

0.372***

0.389***

0.423***

0.445***

0.463***

0.504***

0.531***
0.218**

LGDP

of
ro -0.318***

-0.381***

-0.399***

-0.418***

-0.457***
-0.242**
-0.150*

-0.114*

-0.199*
-0.086

-0.111

LGDP2
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re
0.257***

0.275***

0.301***

0.336***

0.389***

0.401***

0.428***

0.474***

0.501***
0.247**

0.115*

LNEC
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-0.476***

-0.292***

-0.387***

-0.343***

-0.318***

-0.235**

-0.232**
na

-0.162

-0.118

-0.094

-0.071
LREC
ur

***, ** and * represent at 1%, 5% and 10% level of significant respectively. Source: Author’s Calculation
Jo

376 The outcomes of the Method of Movement Quantile regression (MMQR) are shown in
377 table 7. First of all, the favorable influence of GDP on CO2 can be verified. For all quantiles,
378 the table clearly describes that upsurge in CO2 because of GDP is considerable and rises from
379 0.332 to 0.531 as quantile increases. In the initial stages of economic growth, the primary
380 production rising at a slow rate and getting quicker in the late stages of economic growth.
381 Therefore, upsurge in these economic activities leads towards positive influence on carbon
382 emissions. Conversely, the square of income is negatively affecting carbon emissions for all
383 quantiles; however, the impact is statistically insignificant at lower quantiles. Similarly, the
384 EKC hypothesis can be validated for all quantiles even though the turning point is changing
385 across 10th to 90th quantiles. The validity of inverted U-shaped EKC in ASEAN economies
386 specifies that these economies have touched a certain level of economic growth. And now
387 moving towards environmental-friendly economic growth (Grossman and Krueger, 1995).

20
388 Moreover, rising economic growth leads towards improvement in technology, promotes
389 sources of alternate energy and for production sources of renewable energy sources for
390 production and expands the tertiary and services sector which helped to contain carbon
391 emissions (Kaika and Zervas, 2013).

392 Moreover, the outcomes of non-renewable energy consumption (NEC) are

393 significantly and positively correlated with environmental degradation in all the quantiles.
394 Similarly, the size of the effect of NREC is getting larger for higher quantiles. On the
395 contrary, renewable energy consumption (REC) negatively influences the CO2 emissions in
396 all quantiles but this association is statistically insignificant from quantile 60th to 90th. In
397 opposite to previous cases, the size of the effect of REC is getting smaller through higher

of
398 quantiles. The upsurge of renewable energy consumption uses in the energy mix verifies that

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399 energy consumption from non-renewable energy sources are diminishing and holds true for
400
401
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these economies. The negative results of REC may yield a simple outcome; such as
technological innovation particularly related to the production of renewable energy is vital to
re
402 improve the quality of production as well as deteriorating costs of production. Furthermore, it
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403 also fights indirectly against increased environmental pollution.

404 5. Conclusion & Policy Implications

na

405 Changes in global warming and the number of carbon emissions have kept environmental
ur

406 issues attractive and hot topics to be discussed in the literature. Although countless studies
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407 have considered the determinants of the pollution, a typical empirical study either uses
408 aggregate energy consumption or conventional panel estimators. The fundamental objective
409 of this study is to know the role of renewable and non-renewable energy consumption in
410 income-environment nexus for ASEAN economies (Thailand, Singapore, Indonesia,
411 Malaysia, Philippine, Vietnam). Thus, this study for the first time aims to explore the
412 influence of economic growth (GDP), renewable energy consumption (REC), and non-
413 renewable energy consumption (NEC) on CO2 emissions in the analyzed countries by using
414 novel Method of Moments Quantile Regression (MMQR) over the period from 1990-2018.
415 This study applies several preliminary analysis and panel sensitive tests to know about the
416 properties of the dataset and employs several panel estimation techniques alongside quantile
417 regression for robustness check. The outcomes and policy suggestions are listed as follows:
418 i. The IPS and CIPS unit root tests show that the dataset of each variable becomes
419 stationary even though they are non-stationary at levels.

21
420 ii. The Pedroni and the Westerlund bootstrap panel cointegration tests confirm the
421 existence of a long run connection among income, the square of income,
422 renewable and non-renewable energy consumption and carbon emissions.
423 iii. The FMOLS, the DOLS, the FE-OLS report that increases in REC decrease the
424 pollution while increases in NREC stimulate carbon emissions, and the EKC
425 hypothesis is valid. The empirical results report that1 percent increase in REC
426 lead to diminishing the carbon emanation by 1.74%, 1.55% and 1.77% in case of
427 FMOLS, DOLS and FE-OLS respectively, While 1% growth in NEC, upsurges
428 CO2 emissions by 0.29% in case of FMOLS, 0.26% in case of DOLS and 0.30%
429 in case of FE-OLS. Moreover, a 1% growth in GDP raises CO2 emissions by

of
430 0.41%, 0.37% and 0.42% in the case of FM-OLS, DOLS and FE-OLS
respectively. The negative and significant sign of coefficients of GDP square in

ro
431
432 all three methods confirms the presence of EKC in ASEAN countries.
433 iv.
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The result of MMQR demonstrates that income has a positive influence on
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434 carbon emissions in all quantiles (10th to 90th). On the other hand, the square of
435 GDP has a negative impact on the pollution across all quantiles while its
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436 magnitude increases at higher quantiles (60th to 90th). Thus, outcomes verify the
437 occurrence of the EKC hypothesis in all quantiles.
na

438 Moreover, results from MMQR indicate that NEC positively affects
environmental pollution in all the quantiles from 10th to 90th, the value of the
ur

439
440 coefficient lies between 0.27 to 0.50; on the contrary, REC has an inverse
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441 relation with CO2 emissions in all quantiles from 10th to 90th, but it is
442 statistically insignificant from 60th to 90th quantile. The contribution of non-
443 renewable energy consumption to environmental pollution increases with
444 quantile levels; similarly, but conversely, the adverse effects of renewable
445 energy consumption to environmental degradation increases with the levels of
446 the quantile.
447 Based on the above conclusion, the current study recommends some policy
448 recommendations for the selected sample. ASEAN region should turn to renewable energy to
449 meet increasing energy demand for the sake of less pollution and cleaner environment.
450 Although this is accepted as a general perception, the share of renewable energy consumption
451 in emissions reduction almost doubles at the higher quantile levels compared to the lower
452 quantile levels. This suggests that increases in renewable energy consumption at high levels
453 of carbon emissions result in a reasonable impact on environmental degradation. ASEAN

22
454 nations should implement regulations and measures to increase public awareness of green
455 energy and environmental concerns. Even though the stimulation of renewable sources in the
456 energy mix is a clear policy implication, dependence on fossil (non-renewable) energy
457 sources is a barrier in terms of applicability. Therefore, the main critical point is to eliminate
458 these obstacles. This is possible with environmentally friendly technologic investments in the
459 long term. Especially in the industrial sector, keeping this priority at every stage of production
460 should be created both consciously and made attractive with some incentives such as tax
461 exemption and subsidies. Finally, this study can be further expanded by adding other
462 variables like tourism, globalization and financial development which also affect the level of
463 energy utilization and environmental degradation in the ASEAN region. Moreover, this study

of
464 can be done with other regions like BRICS, Group of Seven, or Next 11 countries and by
introducing new and advanced econometric methods.

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465
466

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801
802
803
Nomenclature

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CO2 Carbon Dioxide

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GHG Greenhouse gases

EKC Environmental Kuznets Curve -p

REC Renewable energy consumption
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ADF Augmented Dickey Fuller
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ASEAN Association of Southeast Asian Nations (Thailand, Singapore, Indonesia,

Malaysia, Philippine, Vietnam)
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G7 Group of Seven
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NEC Non-renewable energy consumption

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OECD Organization for Economic Cooperation and Development

FE-OLS Fixed Effect Ordinary Least Square

MENA Middle East and North Africa

IMF International Monetary Fund

IEA International Energy Agency

BRICS Brazil, Russia, India, China, and South Africa

GDP Gross domestic product

PP Phillip Perron

IPS Im, Pesaran and Shin

CIPS Crossectionally-augmented IPS

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 DOLS Dynamic Ordinary Least Square

CD Cross-sectional dependence

FMOLS Fully Modified Ordinary Least Square

BRIICS Brazil, Indonesia, India, Russia, China, South Africa

QR Quantile Regression

PQR Panel Quantile Regression

MMQR Method of Moment Quantile Regression

Coeff Coefficient

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Prob Probability

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t-stat Test statistics

p-value

C
Probability value

Constant
-p
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C&T Constant and Trend
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na

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• The impact of income, renewable and non-renewable energy on carbon
emissions is studied.
• A group of ASEAN countries is covered.
• A novel quantile regression approach is used for empirical analysis.
• Renewable energy is an important tool to fight against increased emissions.

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Declaration of interests

☐The authors declare that they have no known competing financial interests or personal relationships
that could have appeared to influence the work reported in this paper.

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