Energy Policy 38 (2010) 6877–6885

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Motivations driving renewable energy in European countries:

A panel data approach
António C. Marques n, José A. Fuinhas, J.R. Pires Manso
~ Portugal
University of Beira Interior, Management and Economics Department, Estrada do Sineiro, 6200-209 Covilha,

a r t i c l e in fo abstract

Article history: Despite the increasing amount of literature available on renewable energy, the empirical analysis about
Received 27 January 2010 drivers promoting renewables remains scarce. We have analyzed those drivers for European Countries.
Accepted 5 July 2010 Over an extended period of time (1990–2006) we used panel data techniques, namely the fixed effects
vector decomposition. The results suggest that both the lobby of the traditional energy sources (oil, coal,
Keywords: and natural gas) and CO2 emissions restrain renewable deployment. The objective of reducing energy
Renewable energy dependency appears to stimulate renewable energy use. Our results robustly support the EU decision to
Panel data models create a directive promoting the use of renewable sources (Directive 2001/77/EC). We also offer
Fixed effect with decomposition vector suggestions with regards to the design of appropriate policies towards renewable energy deployment.
& 2010 Elsevier Ltd. All rights reserved.

1. Introduction Member States. This framework is compulsory for EU Members

There are an increasing number of papers dedicated to
Renewable Energy (hereafter RE), but it is less common to find
contributions to the discussion of the effect, and the effectiveness
of factors and policies promoting energy from renewable sources.
Despite the huge research regarding the normative perspective,
and points of view on what should influence switching from
traditional energy sources to renewable sources, there is a lack of
empirical work. In addition, the vast research on factors promot-
ing RE is mostly applied to wind energy (e.g. Bird et al., 2005;
Menz and Vachon, 2006).
The scarce empirical work is focused on the USA. Menz and
Vachon (2006), estimate a regression equation using the OLS
method applied to a one year-data of 30 American States.
Differently, Carley (2009) stresses the importance of including a
time dimension in these kinds of studies and estimated a model of
fixed effects, and a model of fixed effects with vector decomposi-
tion, for 48 States of the USA, using data from a time period of
9 years (1998–2006).
Our focus is on Europe, and particularly the European Union
(EU), as many of its countries have a track record of concerns
about climate change. Some contributors are the White Paper for a
Community Strategy and Action Plan, Energy for the Future:
Renewable Sources of Energy (1997), the Directive 2001/77/EC
(EU, 2001) (updated by the Directive 2009/28/EC -(EU, 2009)), and
the ratification, in 2002, of the Kyoto Protocol by the EU and its
n
Corresponding author. Tel.: +351 275 319 600; fax: + 351 275 319 601.
E-mail addresses: amarques@ubi.pt, acardosomarques@gmail.com
(A.C. Marques).
unlike non-EU Members. The 2000’s and specifically the year
2001, represent the benchmark for the targets of RE use, as a
result of Directive 2001/77/EC. To gauge the implicit hypothesis of
different behavior, for EU Members and non-EU Members, the
sample was also sliced according to the membership in 2001.
Our aim is to analyze the motivations behind renewable
energy use in European Countries, by using panel data techniques,
namely the fixed effects vector decomposition, over an extended
period of time (1990–2006). To measure the RE, we use the
contribution of renewables to total energy supply as a percentage
of the total primary energy supply. The design of appropriate
policies requires a profound knowledge about both encouraging
and discouraging factors of RE use. We manage three kinds of
factors: political, socioeconomic and country specific. Our con-
tribution is threefold. First, we add to the empirical literature
evidence on RE drivers. Secondly, we focus on an economic block
with a background on the fight against climate change. Thirdly,
we use both the standard panel data techniques, and the fixed
effects vector decomposition method to assess whether time-
invariant and rarely changing variables affect the RE commitment.
The results corroborate the lobby effect of the traditional
energy sources in constraining the impetus towards renewables.
The socioeconomic and political factors are mainly robust.
Unexpectedly, the carbon dioxide emission mitigation did not
promote the RE deployment.
The remainder of the paper is organized as follows: Section 2
makes an insight on literature about determinants of RE
development. The third section describes the methodology.
Section 4 shows the results, and the discussion of the motivations
towards renewables is made in Section 5. Section 6 concludes our
findings.

0301-4215/$ - see front matter & 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2010.07.003
6878 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885

2. Determinants of RE development Wüstenhagen and Bilharz (2006) focuses on Netherlands, Sweden

One way of evaluating the development of the RE sources of a
country is to measure the replacement of the traditional energy
sources in the total energy supply. Another method, suggested by
the literature, is to measure the total amount of RE produced (e.g.
Bird et al., 2005). A third, is to use the natural logarithm of the RE
share on the total electricity generation (e.g. Carley, 2009).
In this paper we explain the contribution of renewables to
energy supply (CRES), as a percentage of total primary energy
supply. The explanatory variables are grouped in three categories:
(i) political factors; (ii) socioeconomic factors; and (iii) country
specific factors. Let us see each one of them separately.
2.1. Political factors
Several studies, such as Menz and Vachon (2006) and Carley
(2009), point out political motivations as the most relevant aspect
to the promotion of RE. One of the variables that the literature
suggests to explain the promotion of clean energies is the
imposition of quotas for the total energy supply. Financial benefits
(subsidies) to the promotion and use of renewable sources
through price regulation, like the feed-in-tariffs, capital subsidies
and tax mechanisms, are occurrences that potentially favour RE
use. When the time period is short and contemporaneous, the
consideration of these policy measures is feasible. For a long span
of time however, we are constrained by the lack of data. It is
worth saying that almost all countries adopted these policies
during the first decade of the 21st century as can be seen in the
European Renewable Energy Council.1
We consider an institutional variable (dummy) for the
integration of a country in the EU (Directive 2001/77/EC), and
another one to measure energy import dependency.
and Germany respectively, but only for a short span of time and
based on a descriptive approach; (ii) most of these policies
were adopted in the late 1990s and mainly in the early 2000s;
(iii) Johnstone et al. (2010) conclude that the effect of public
policies largely depends on the type of renewable source.
Considering all the sources together, Johnstone et al. (2010) find
that only the obligations (for instance, production quotas) are
significant at the 1% level of significance. The remaining
incentives are statistically not significant. The authors also
conclude that feed-in-tariffs levels are statistically not significant
in the patenting activity when considering all renewable sources.
From a small sample, Menz and Vachon (2006) conclude that
public benefits funding is not a determining incentive in the
development of wind energy.
We consider a shift dummy variable to identify EU Members in
the year 2001. Beyond that, we separate the countries in two
groups: the EU Members and the non-EU Members (but
potentially adherent countries).
2.1.2. Energy security (IMPTDP)
Literature (e.g. Gan et al., 2007) suggests as a major incentive
for RE deployment the substitution of energy import by local
generated means. Chien and Hu (2008) found empirical evidence
of a positive effect of the RE, but only on capital formation. Their
conclusions are contrary to what is pointed out by theory. These
authors conclude that there are no significant effects of the RE on
energy imports. That literature advances the hypothesis that
energy security promotes RE deployment. We test that hypoth-
esis, and for that propose we use the energy import dependency
of each country. We expect to confirm that, the larger the
dependency on energy imports a country is, the higher is the
investment on its own renewable sources.

2.2. Socioeconomic factors

2.1.1. Institutional variable – to be member of the EU in 2001
(DEU01) The socioeconomic factors are potential explainers in the
Building on Harmelink et al. (2006), we consider 2001 the selection of energy sources. For this reason, in this study we
great target in EU policies for the promotion of clean energy. In control prices, carbon dioxide, the alternative energy sources and
fact, it was only during the beginning of the 21st century that also energy consumption and income.
some countries or political blocs (as is the EU case), began to set
targets for RE and to define policy measures for the sector. The
2.2.1. Prices of oil, natural gas and coal (OILP, GASP, and COALP)
feed-in-tariffs regulated system is relatively recent, becoming
The price of clean energy, such as solar and wind energies is
visible only after 2000.2 It was the EU Directive 2001/77/EC of
relatively high when compared to those of the traditional energy
2001 that imposed mandatory targets for member countries,
sources. As noted by Menz and Vachon (2006), the prices of
signalling also the EU adherent countries to a commitment they
traditional energy sources do not include the environmental costs.
have to face after their adhesion processes.
Prices, fail to reflect the real costs of their use, when compared to
Literature (e.g. Van Rooijen and van Wees, 2006; Wang, 2006;
the ones of RE, giving the idea that prices of clean energy are not
Wüstenhagen and Bilharz, 2006; Gan et al., 2007; Johnstone et al.,
competitive in the short term. Chang et al. (2009) study the
2010) considers that public policies are relevant to explain the RE
interrelationship among prices, income and renewables. The
development. The public policy mix is constituted by R&D
authors conclude that countries with high economic growth deal
incentive programs, investment incentives (grants or low-interest
better with high energy prices (related to the use of RE), because it
loans), incentive taxes, incentive tariffs, mainly feed-in-tariffs,
is easier to support the high costs connected with these
voluntary programs and compulsory renewable targets (produc-
technologies.
tion quotas and tradable certificates). Gan et al. (2007) summarize
As suggested by most of the literature (e.g. Bird et al., 2005;
the objectives, advantages, and disadvantages of each one of these
Van Ruijven and van Vuuen, 2009), our model includes the prices
policies. We do not include these variables for three reasons: (i)
of conventional energies, such as natural gas, oil, coal and also
there is no available data about those policies for all the countries
nuclear power. Taking into account the degree of substitution of
considered throughout the entire time horizon (1990–2006) – for
the different energy sources, we expect to verify that higher
instance, Van Rooijen and van Wees (2006), Wang (2006), and
priced conventional sources’ means greater RE use.

1
See http://www.erec.org/policy-actions/national-policies.html. 2.2.2. The carbon dioxide emissions (CO2PC)
2
The Renewables Obligation is designed to incentivise the generation of
electricity from eligible renewable sources in the United Kingdom. It was
Climate change is associated with the emission of large
introduced in England and Wales and, in a different form (the Renewables quantities of greenhouse gases, such as carbon dioxide (hereafter
Obligation in Scotland only in April 2002, and in Northern Ireland in April 2005). CO2), chlorofluorocarbons, methane, nitric acid and ozone. This
 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885
natural phenomenon of the greenhouse effect – which is caused
by these gases – is essential for life on Earth. When this effect is
uncontrolled, it results in a great and continuous increase of the
average temperature of the planet. It can melt large quantities of
ice and snow and lead to undesirable consequences for human-
kind. The most common factor to be held responsible for these
climate changes is CO2. Most of the literature (e.g. Sadorsky,
2009a; Van Ruijven and van Vuuen, 2009), suggests the hypoth-
esis that environmental concerns are incentives for a widespread
use of RE. We test the former hypothesis controlling for CO2 per
capita, expecting that greater amounts of CO2, means more
incentive towards RE commitment.
2.2.3. Contribution of coal, oil, natural gas and nuclear to electricity
generation (SCOALEG, SOILEG, SGASEG, and SNUCLEG)
Some literature (e.g. Huang et al., 2007; Sovacool, 2009),
supports the theory that the strength of traditional energy sources
both on politics and on the economy, results from strong lobbying
activities. This lobbying of traditional energy industries is noted in
the capital markets, in the military industry, and, in general, in
political decision-making of governments. This results in a
potential barrier to RE development. In fact, the established
interests (stakeholders of these industries), can be an obstacle for
the development of the RE sources. This results from its crucial
role in investments, employment, and high impact on the whole
economy. We consider the contribution of the traditional energy
sources on electricity generation, expecting to obtain negative
effects regarding oil, coal, natural gas and nuclear.3
2.2.4. Energy consumption (ENERGPC)
Energy consumption is traditionally used as a development
indicator. It is also used to reveal the energy needs of a country.
Larger consumption needs, exert strong pressure on the level
of energy use. Those needs can be supplied by: (i) traditional fossil
fuels sources; (ii) RE sources; and (iii) a mixture of both. The energy
consumption could be satisfied by traditional energy sources, by
clean sources, and by using a combination of traditional and clean
sources. We control for the consumption of energy per capita,
expecting either a positive or a negative effect on the RE.
2.2.5. Income (GDP)
In the literature of RE, the income effect is recurrently tested
(e.g. Narayan and Smyth, 2008; Chang et al., 2009; Sadorsky,
2009b). Usually the income can be measured in two ways: (i) by
Gross Domestic Product (hereafter GDP) or (ii) alternatively by
GDP per capita. Huang et al. (2007), use the Gross State Product. In
a similar way, we use absolute economic size measure (GDP) and
not the standard of living of a population as the explanatory
variable. We expect to conclude that greater income level is
correlated with greater RE use. This expectation is based on two
reasons: firstly, a greater level of income means greater potential
to bear high regulatory costs (which can result in both higher
prices and taxes); and secondly, greater income means more
resources available to implement and promote sustainable
environmental alternatives (and greater RE use).
3
This is a different case attending to its own specificities. It is worth to refer
that nuclear power can be considered as green energy and object of incentives if
we intend to reduce the level of gas emissions with greenhouse effect, while
hydro-electricity power can be considered ‘‘non-green’’ by the environmental
consequences it carries.
6879
2.3. Country specific factors
Individual country specificities, such as culture, wealth or
production potential of renewables, have been referred in
literature as possible explanatory variables of RE use (e.g. Vachon
and Menz, 2006). The vast time span used in our approach
excludes the possibility of considering recent pro-environmental
associations due to lack of data. The inventory of energy
resources, such as wind and solar power, is ongoing or never
began. Thus, we control for production potential of renewables
with the proxy variable geographic area. The continuous commit-
ment with regards to RE use is assessed by a proxy variable
DCONT.
2.3.1. Geographic area (AREA)
One of the relevant variables used in the literature (e.g. Vachon
and Menz, 2006) to explain RE use is the production potential of
renewables. Many countries of Europe do not have this kind of
inventory/information for the span of time considered in our
empirical application. As a proxy of the production potential of
renewables, we tested a variable associated with the country size
or dimension, i.e., its geographic area. Taking into account the
physical characteristics of the available production technologies,
we expect to confirm that greater geographic area is associated
with greater production potential of renewables. Thus, geographic
area is expected to promote RE use. The explanatory power of this
variable in assessing the production potential of renewables is
open to discussion.
Once the production potential of renewables is expected to
evolve in time with the available technology, it is debatable to
accept it as invariant, as suggested by Carley (2009). The author
considers invariant the potential of renewable sources for 9 years,
concluding that the amount of wind land area in a State is
negatively related with its RE share. This relationship is possibly
affected by the fact that the variable may vary throughout the
span of time.
Table 1 shows the electricity production from the wind source4
in 2006 and its estimated potential by the European Environment
Agency for the years 2020 and 2030, by cost classes, according to
the technology available at present. In Belgium, for example, the
forecasted potential of competitive wind will be multiplied by 35
in 10 years. We can see that, together, the potential will more
than double, although the country’s performance is not
homogeneous. The potentiality of non competitive wind is
drastically reduced.
2.3.2. Continuous commitment on RE (DCONT)
The continuous commitment of RE implies large amounts of
investments in technologies and infrastructures. These invest-
ments allow the exploration of scale economies, i.e., the genera-
tion of more energy from renewable sources, dilutes fixed costs.
Lower average costs make profitability possible without subsidies.
Thus, once an investment in RE is made, a long term commitment
with RE is expected. The dummy variable DCONT takes value 1
when the CRES is greater than 10%, and 0 otherwise. This variable
aims to control for the level of development of RE. A positive
effect is expected. The commitment with investments in renew-
able sources can be interpreted as a mirror of the scale economies
effect.
4
As emphasized by Vachon and Menz (2006), an improved efficiency and the
huge investment in the production of wind turbines resulted in decreasing wind
energy production costs, the least of any non hydro-electricity renewable source.
Also, wind production allows increasing the hydro-electricity production poten-
tial, taking advantage of the continuous energy produced off-peak by pumping
water in dams.
6880 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885

Table 1
Generation potential of wind energy on land by cost classes (TWh).

Electricity production (1) Not competitive (2) Most likely competitive (3) Competitive (4)

2006 2020 2030 2020 2030 2020 2030

Austria 1.72 463 199 3 211 NA 56

Belgium 0.36 371 0 53 12 12 425
Czech Republic 0.05 687 169 1 434 0 85
Denmark 6.11 0 0 65 0 687 751
Estonia 0.08 419 0 111 75 142 597
Finland 0.16 4016 7 204 1052 198 3359
France 2.15 3951 736 733 1409 576 3115
Germany 30.71 3376 344 384 1206 258 2467
Greece 1.7 261 123 54 71 251 372
Hungary 0.04 557 343 0 213 0 1
Ireland 1.62 0 0 7 0 1308 1315
Italy 2.97 983 571 57 247 112 334
Luxembourg 0.06 30 0 0 20 0 10
Netherlands 2.73 217 0 158 0 158 533
Poland 0.26 3437 39 134 1035 112 2609
Portugal 2.93 601 209 13 316 63 152
Slovak Republic 0.006 323 184 0 128 0 11
Slovenia NA 106 87 0 17 0 2
Spain 23.02 2316 1050 170 1018 263 682
Sweden 0.99 3900 487 528 2021 620 2539
Switzerland 0.02 42 39 0 3 0 1
Turkey 0.13 1264 757 89 296 123 421
United Kingdom 4.23 0 0 447 0 3961 4409

Notes: Adapted from ‘‘Europe’s onshore and offshore wind energy potential’’, Technical report No. 6/2009, European Environment Agency. (1) Eurostat; (2) cost classes with
average production costs 40.067h/kWh; (3) cost classes with average production costs¼ 0.063h/kWh (range 0.055–0.067); and (4) cost classes with average production
costs o 0.055h/kWh. NA – Data not available. Terawatts-hour.

3. Methodology Table 2
Year of adhesion to the EU and contribution of renewable sources to total energy
supply.
We proceed by presenting the data and the analysis method. Source: OECD Factbook, 2009.

Country CRES (%) EU’s membership

3.1. Data year
2001 2006
We use data collected from several sources, namely the OECD
Austria 22.6 22.7 1995
Factbook 2009, the Eurostat (December 2008), the European
Belgium 5 6 1957
Community, Directorate-General for Energy and Transport (DG Czech Republic 2.1 4.5 2004
TREN), the United Nations Statistics Division, the Demographic Denmark 11.5 15.6 1973
Yearbook, and the BP Statistical Review of World Energy 2009. The Estonia 11.5 10.8 2004
Finland 23 23.1 1995
table in the appendix defines the variables, its measures, and
France 7 6.3 1957
summarizes its descriptive statistics. We use a time span of 17 years, Germany 3.4 6.1 1957
from 1990 to 2006. The object of analysis is EU countries, with the Greece 4.7 5.8 1981
exceptions of Cyprus, Bulgaria, Latvia, Lithuania, Malta and Romania Hungary 2 4.7 2004
due to lack of data (which became available in the late 1990s). We Iceland 73.1 75.3 –
Ireland 1.5 2.7 1973
add to our sample the candidates of the EU adhesion: Iceland,
Italy 6.2 7.2 1957
Switzerland and Turkey (in accordance to the EU technical reports).5 Luxembourg 1.6 1.7 1957
Table 2 reveals the CRES, both in the 2001 (year of the Directive Netherlands 2.5 3.7 1957
2001/77/EC) and 2006, as well as the EU’s membership year (if Poland 5 5.7 2004
Portugal 16.1 17.1 1986
applicable).
Slovak Republic 4.4 4.7 2004
The normality tests of CRES suggest that the distribution of the Slovenia 11.5 10.7 2004
dependent variable is skewed and has thick tails. One way of Spain 6.5 6.5 1986
avoiding the bias and the inconsistency of estimates, is to Sweden 28.4 29 1995
substitute the dependent variable by its natural logarithm Switzerland 18.2 17.2 –
Turkey 13.2 11 –
(Cameron and Triverdi, 2009). Thus, we use LCRES, the natural
United Kingdom 1.2 2 1973
logarithm of the CRES as the dependent variable (Carley, 2009).
Notes: CRES – Contribution of renewables to energy supply (% of total primary
energy supply).
3.2. Analysis

The data sample was converted to a panel data format. On one

account the different characteristics found amongst the individual
hand, time-series and cross-sectional studies do not take into
units (countries), which will almost always produce highly biased
results. On the other hand, panel data contains more information,
5
See, for instance, EEA (2009). greater variability of data, less co linearity between the variables,
 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885 6881

higher number of degrees of freedom, and more efficiency in the
estimates (Greene, 2003). These country specific effects can be
assumed to be either random or fixed. If the country specific
effects are assumed as random, then they are not correlated with
the other explanatory variables. In the fixed effects model, the
country specific effects are assumed to be correlated with the
explanatory variables. Our sample is longer than that used by
Menz and Vachon (2006) and the used by Carley (2009). This
allows us to improve the precision of our estimates and to
generate more reliable random errors or standard deviations.
The use of fixed effects to control for the unobserved country
heterogeneity, in order to eliminate the bias of the coefficients of
time-variant variables, do not allow us to estimate the coefficients
of time-invariant variables. On one hand, variables that are time-
invariant, or that are rarely changing, could be important to
justify the motivation of the commitment on RE. On the other
hand, the contribution of renewable sources to the total energy
supply varies very slightly from one country to another. Under
these circumstances, the fixed effects with vector decomposition
estimator (FEVD), generates more efficient estimates than the
simple fixed effect estimator (Plümper and Troeger, 2007). We
deal with some possible bias of the coefficients of time-variant
variables, by decomposing the fixed effects on its explainable
component (i.e., correlating the time-invariants variable) and its
unexplained component.
The estimation of the FEVD model follows a three-step
estimator. The first step is to estimate the fixed effect regression
to get each country fixed effects estimates (unitary effects), using
only time-variant variables. The second step consists of the
decomposition of these OLS estimated fixed effects in two parts:
one explained and another unexplained (the residuals). These
residuals are the error terms of the regression of the estimated
unitary effects upon the time-invariant variables, not correlated
with the time-invariant variables. Finally, in the third step, a
pooled regression (OLS) is used, which includes all of the variables
– the time-variants, the time-invariants, and the unexplained
time-invariant residuals. It follows that it is equivalent to the
fixed effects estimator, with the exception of the time-invariant
effects once they are decomposed in the explained and un-
explained components.
The econometric model used in this analysis is the following:
j
X
k X
LCRESct ¼ a þ bk Xkct þ dj Zjc þ ect , ð1Þ
k¼1 j¼1
where ect ¼ mc þ Zct , X are the time-variant variables, Z are the
time-invariant variables, mc represents the N 1 country specific
effects, Zct are the independent and identically distributed error
terms, c represents each one of the countries, and t represents
the year.
4. Results
In Tables 3–5 we reveal the results of our models. In Table 3 we
consider data for all 24 European countries; in Table 4 we
consider the non-EU Members in 2001 (at moment of the
Directive 2001/77/EC); and in Table 5 we consider the EU
Members at the same date.
The validity of the estimations is assessed by applying a set of
tests. From the LM and F tests we reject the null hypothesis. We
conclude that the pooled OLS estimator is not a good estimator.
From the Wald test we reject the null hypothesis of non-
significance, as a whole, of the parameters of the explanatory
variables. In order to check the relevance of the non-observed
individual effects, the Hausman test was performed. This test is
inconclusive, reason why it is not possible to decide whether the
random effect estimator is superior to the fixed effects or not.
Consequently, we conclude that the random effects and the fixed
effects estimation processes achieve robust estimates and have a

Table 3
Regression results. Data for all 24 European countries (1990–2006).

Independent variables Model (1) OLS Model (2) RE Model (3) FE Model (4) FEVD

Dependent variable – logged share of contribution of renewables to energy supply

CO2PC  0.0001288*** (0.0000118)  0.0001325*** (0.0000224)  0.0001276*** (0.0000252)  0.0001181*** (0.0000042)
ENERGPC 0.0002246*** (0.0000251) 0.000125*** (0.0000331) 0.0001075*** (0.0000338) 0.0001109*** (0.0000074)
SCOALEG  0.2099455 (0.1851906)  1.975046*** (0.3644396)  2.036193*** (0.4318818)  2.00914*** (.2859055)
SOILEG  0.759372** (0.3777189)  1.357134*** (0.3488213)  1.097463*** (0.3290004)  1.071415*** (0.1754635)
SGASEG  1.583003*** (0.2254674)  0.1990497 (0.3187145)  0.0983959 (0.3099008)  0.1442231 (0.1004704)
SNUCLEG  0.9794912*** (0.1798735)  1.280589*** (0.4659057)  0.4037202 (0.6667479)  0.177108 (0.4769393)
IMPTDP 0.0042084*** (0.0011587) 0.0039229* (0.0021898) 0.0046146* (0.0025029) 0.0082753*** (0.0007904)
GDP  0.0001917*** (0.0000476)  0.0000219 (0.0001113) 0.0002484 (0.0001877) 0.0002796** (0.0001343)
COALP  0.0045932 (0.0031181)  0.0013728 (0.0014831)  0.0008487 (0.0015068)  0.0003335 (0.0002194)
GASP 0.0287782 (0.0492568) 0.0291917 (0.0264181) 0.0243519 (0.0255915) 0.0122386*** (0.0024189)
OILP 0.0055362 (0.0054754) 0.0007946 (0.002892) 0.0003153 (0.0027994) 0.0000633 (0.000245)

Time-invariant and rarely changing variables

AREA 0.0003929*** (0.0001459) – –  0.0006739*** (0.0000033)
DCONT 1.025376*** (0.0774274) – – 1.198043*** (0.0023241)
DEU01 0.2974476*** (0.0649152) – –  0.3030197*** (0.0015098)
FEVD residuals – – – 1*** (0.0011341)
CONSTANT 1.938466*** (0.2231458) 3.441818*** (0.2725514) 3.110212*** (0.2827199) 2.668102*** (0.0013722)

Observations 408 408 408 408

R2 0.82 0.47 0.96
F-test N(0,1)) 130.46*** 92.11***
LM (w2) 1689.84***
Wald (w2) 568.48***

Notes: The Wald test has w2 distribution and tests the null hypothesis of non-significance of all coefficients explanatory variables; the F-test is normally distributed N(0,1)
and tests the null hypothesis of non-significance as a whole of the estimated parameters; the LM test has w2 distribution and tests the H0 of non-relevance of individual
effects; ***, **, *, denote significance at 1%, 5% and 10% significance levels, respectively; robust standard deviations are reported in brackets; OLS – ordinary least squares;
RE – random effects; FE – fixed effects; FEVD – fixed effects vector decomposition.
6882 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885

Table 4
Regression results. Data with non-EU Members in 2001 (1990–2006).

Independent variables Model (5) OLS Model (6) RE Model (7) FE Model (8) FEVD

Dependent variable – logged share of contribution of renewables to energy supply

CO2PC  0.0002002*** (0.0000226)  0.0001618*** (0.0000427)  0.0002328*** (0.0000397)  0.0002176*** (0.0000063)
ENERGPC 0.0001051** (0.0000488) 0.0000979 (0.0000684) 0.0001804*** (0.0000487) 0.0001813*** (0.000017)
SCOALEG  0.8368117** (0.3971411  1.301271** (0.5743261)  6.581843*** (1.310035)  6.970494*** (2.55483)
SOILEG  4.800577*** (0.9469312)  6.690652*** (0.9222201)  5.776042*** (1.058277)  5.602663*** (0.7717927)
SGASEG  3.220834*** (0.4612706)  4.73174*** (0.4558832)  3.729003*** (0.8125502)  3.951158*** (1.024351)
SNUCLEG  5.019002*** (0.5066198)  4.779117*** (0.2826338)  1.925741** (0.8968642)  1.901472 (1.904064)
IMPTDP 0.0223575*** (0.0036986) 0.025457*** (0.0067539) 0.0177483 (0.0113069) 0.0212686*** (0.004227)
GDP  0.0006004 (0.0003912)  0.0012095*** (0.0003578)  0.0014429 (0.0018603)  0.0014661** (0.000596)
OILP 0.0021871 (0.0064623) 0.0028567 (0.0076782) 0.0004502 (0.0042827)  0.0001686 (0.0005076)
GASP 0.0464585 (0.581594) 0.0830859 (0.069132) 0.0047348 (0.0431152)  0.0060206* (0.0031887)
COALP  0.0029778 (0.0037779)  0.0073036* (0.0044291)  0.0024228 (0.0023203)  0.001831*** (0.0005429)

Time-invariant and rarely changing variables

AREA  0.0016629*** (0.0003149) – – 0.0019538*** (0.0000048)
DCONT 0.4513266*** (0.0975922) – –  1.337027*** (0.0034677)
FEVD residuals – – – 1*** (0.0003993)
CONSTANT 4.253071*** (0.4784125) 4.167706*** (0.5248846) 6.410587*** (0.6381819) 6.612486*** (0.002229)

Observations 153 153 153 153

R2 0.92 0.67 0.96
F-test N(0,1)) 130.62*** 29.61***
LM (w2) 114.4***
Wald (w2) 1094.62***

Notes: The Wald test has w2 distribution and tests the null hypothesis of non-significance of all coefficients explanatory variables; the F-test is normally distributed N(0,1)
and tests the null hypothesis of non-significance as a whole of the estimated parameters; the LM test has w2 distribution and tests the H0 of non-relevance of individual
effects; ***, **, *, denote significance at 1%, 5% and 10% significance levels, respectively; robust standard deviations are reported in brackets; OLS – ordinary least squares;
RE – random effects; FE – fixed effects; FEVD – fixed effects vector decomposition.

Table 5
Regression results. Data with EU Members in 2001 (1990–2006).

Independent variables Model (9) OLS Model (10) RE Model (11) FE Model (12) FEVD

Dependent variable – logged share of contribution of renewables to energy supply

CO2PC  0.0000485n (0.0000252)  0.000065nnn (0.0000166)  0.0000552nnn (0.0000162)  0.0000553nnn (0.0000011)
ENERGPC 0.0000135 (0.0000707) 0.0001315n* (0.0000595) 0.00011n (0.0000652) 0.0001102nnn (0.0000191)
SCOALEG  0,2094458 (0.2512881)  1.657441nnn (0.2693307)  1.516616nnn (0.281059)  1.437619nnn (0.061314)
SOILEG 0.090258 (0.4215477)  0.6851509nn (0.2648152)  0.5875848nn (0.2464865)  0.5712036nnn (  0.2218582)
SGASEG  0.8979122nnn (0.2997679)  0.2830524 (0.232718)  0.2556239 (0.1997991)  0.2218582nnn (0.0332035)
SNUCLEG  0.0067271 (0.2904175)  1.317757nn (0.5497626)  1.251937n (0.7062935)  1.127662nnn (0.3059814)
IMPTDP 0.0032182n* (0.0012622) 0.0015008 (0.0013504) 0.0006829 (0.001262) 0.0030581nnn (0.0002236)
GDP  0.0002671nnn (0.0000564) 0.0003068nn (0.0001356) 0.0004975nn (0.0001945) 0.0004928nnn (0.0000625)
OILP 0.0063935 (0.0069201)  0.0005542 (0.0023543)  0.0006566 (0.0023073)  0.000563nnn (0.0000637)
GASP 0.0544111 (0.0622061) 0.0301664 (0.0219557) 0.026052 (0.0215775) 0.0205188nnn (0.0013909)
COALP  0.0056239 (0.0039379) 0.0004436 (0.0013484) 0.000633 (0.0014371) 0.0006926nnn (0.0001662)

Time-invariant and rarely changing variables

AREA 0.0010672nnn (0.0003063) – – 0.0001686nnn (0.0000014)
DCONT 1.353431nnn (0.138469) – – 1.783292nnn (0.0007698)
FEVD residuals – – – 1nnn (0.0006298)
CONSTANT 1.644965nnn (0.3164299) 2.300524nnn (0.3023199) 2.131238nnn (0.3001926) 1.395448nnn (0.0003239)

Observations 255
R2 0.81 0.55 0.98
F-test (N(0,1)) 79.23 144.02nnn
LM (w2) 808.82 nnn

Wald (w2) 258.79nnn

Notes: The Wald test has w2 distribution and tests the null hypothesis of non-significance of all coefficients explanatory variables; the F-test is normally distributed N(0,1)
and tests the null hypothesis of non-significance as a whole of the estimated parameters; the LM test has w2 distribution and tests the H0 of non-relevance of individual
effects; nnn, nn, n, denote significance at 1%, 5% and 10% significance levels, respectively; robust standard deviations are reported in brackets; OLS – ordinary least squares;
RE – random effects; FE – fixed effects; FEVD – fixed effects vector decomposition.

higher probability of generating consistent and efficient esti-
mates, than the pooled OLS estimation. In fact, from the
observation of the estimation results, we see that parameters
and significances are very similar, revealing consistent
estimates. Asymptotic robust standard deviations are reported
in brackets.
We also verify that the random and fixed effects estimates are
robust and with a higher probability to generate consistent and
efficient estimates than the pooled OLS estimation.
In order to simplify the analysis of the results of all estimated
models, in Table 6 we show the coefficients signs and
significances.
 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885 6883

Table 6
Summary of the estimated effects.

Variables Models

All countries Non-EU Members EU Members

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

Dependent variable (LCRES) – logged share of contribution of renewables to energy supply

CO2PC  nnn  nnn  nnn  nnn  nnn  nnn  nnn  nnn n  nnn  nnn  nnn
ENERGPC + nnn + nnn + nnn + nnn + nn + + nnn + nnn + + nn +n + nnn
SCOALEG   nnn  nnn  nnn  nn  nn  nnn  nnn   nnn  nnn  nnn
SOILEG  nn  nnn  nnn  nnn  nnn  nnn  nnn  nnn   nn  nn  nnn
SGASEG  nnn     nnn  nnn  nnn  nnn  nnn    nnn
SNUCLEG  nnn  nnn    nnn  nnn  nnn    nn n  nnn
nnn n n
IMPTDP + + + + nnn + nnn + nnn + + nnn + nn + + + nnn
nnn
GDP   + + nn   nnn   nn  nnn + nn + nn + nnn
OILP     + + +  +    nnn
GASP + + + + nnn + + + n + + + + nnn
COALP      n   nnn  + + + nnn
AREA + nnn – –  nnn  nnn – – + nnn + nnn – – + nnn
DCONT + nnn – – + nnn + nnn – –  nnn + nnn – – + nnn
DEU01 + nnn – –  nnn – – – – – – – –
FEVD residuals – – – 1nnn – – – 1nnn – – – 1nnn
CONSTANT + nnn + nnn + nnn + nnn + nnn + nnn + nnn + nnn + nnn + nnn + nnn + nnn

nnn nn n
Notes: + means positive sign; - means negative sign. , , , denote significance at 1%, 5% and 10% significance level, respectively.

In short, the results show:
 A negative and statistically significant relationship between
CO2 emissions and LCRES (effect not expected). This effect is
robust and it is verified for all estimations.
 The parameter measuring the effect of ENERPC, is positive (as
expected) and statistically significant.
 All estimated models confirm that the greater the use of coal
and oil, the smaller the focus on RE sources. This relationship is
statistically significant, as it suggests the existence of an
industrial lobbying, making difficult the development of RE.
 Larger energy dependency has a positive effect on RE
development. The effect is statistically significant, and pre-
sents the expected signs.
 Income effect on RE is positive and statistically significant for
all EU Members, and negative for non-EU Members.
 EU Members reveal a statistically significant relationship
between the oil price and RE.
 EU Members and all countries had a positive and statistically
significant relationship between the price of natural gas and
the RE.
 EU Members had a positive and statistically significant
relationship between the price of coal and the RE.
 Non-EU Members had a negative and statistically significant
relationship between the price of coal and the RE.
 EU Members reveal a positive and significant effect of the
continuous commitment to RE.
 Non-EU Members reveal a negative and significant effect of the
continuous commitment.
 Parameter measuring effect of geographic area (dummy) on
the RE is positive and statistically significant, both in the EU
Members and in non-EU Members.
5. Discussion
In general, environmental concerns appear not encouraged the
use of RE. We found that the larger CO2 emissions, the smaller are
RE commitments. This suggests that the greater the level of
economic activity, the greater the pollutant activity will be and
therefore the propensity to invest in renewable sources will be
smaller. This former effect is unexpected. More in-depth analysis
revealed that it was during the period from 2003 to 2006 that the
average CO2PC is larger. This result is robust for all estimations.
However the magnitude of the effect is larger for non-EU
Members. Therefore the results suggest that social pressure
towards environmental quality and climate change improve-
ments were not consequent in the decision process of switching
to renewable sources. The opposed effect was verified for energy
dependency, in accordance with the literature. The energy self-
sufficiency aim, promotes the development of renewable sources.
The impact of industrial lobbying groups (coal, natural gas, oil)
was verified. This result sheds light onto the lack of clarity present
in the literature. This suggests that there could be an opaque
relationship among players of traditional energy sources and
environmental practices. In fact, we found empirical evidence that
the larger the proportion of energy generated from fossil sources,
the smaller the RE use is. As noted by Sovacool (2009), the lobby
effect delays the RE commitment. All the estimation for oil and
coal confirms this result. Among traditional energy sources,
natural gas and nuclear power are not heavy polluters. However
its effects on RE use are similar. It is worth noting that nuclear
power is not present in four of nine of non-EU Members.
The income effect is surprisingly unstable, despite being
aligned with the lack of consensus in the literature. Indeed, some
literature is inconclusive regarding the relationship between
income and environmental concerns. The positive effect of wealth
in the promotion of RE, verified by Vachon and Menz (2006) and
by Huang et al. (2007), is strongly confirmed for EU Members. In
assessing the income effect, we use GDP, although have tested
several proxies of the income effect, namely GDP per capita (as
Carley, 2009), the natural logarithm or both the contemporary
and lagged growth rates. In general, the variables of the former
are poor in the explanation of RE use. This suggests that the major
effect on the commitment to renewables is the absolute economic
size of a country and not the standard of living of its population.
Larger income allows countries to handle the costs of
developing RE technologies. Moreover, it guarantees higher
support for the costs of public policies in promoting and
regulating RE. For non-EU Members its effect is contrary and
weaker. The average GDP of the EU Members in 2001 was about
6884 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885

six times larger than that of non-EU Members. The negative effect
verified in the former countries is explained by the low level of
the GDP, suggesting scarcity of wealth to cope with RE costs. In
2001, for instance, the average GDP of the EU Members was 803
billion USA dollars (2005 prices), compared with 130 billion
dollars for non-EU Members.
The results for the effects of prices are mixed. In the case of oil,
most of the models reveal that it is not a significant factor on the
promotion of RE use. A small price increase does not seem to be
enough to encourage the switch from grey to green power. It is
worth stressing that our analysis ends in the year 2006. This
means that the recent rising path of oil prices (reaching 150 US
dollars per barrel) is not included in our study. Nevertheless, for
EU Members we found a negative and significant effect of oil
prices on RE. In the absence of environmental restrictions, the oil
price increase stimulates the use of coal, other fossil alternatives
and nuclear power, instead of renewable sources (in accordance
with Van Ruijven and van Vuuen, 2009).
For the EU Members, a shift was verified in the shares of coal
and natural gas. In 2001 the average share of electricity generated
by coal was 25%, and natural gas, 22%. Five years later (2001–
2006), the share of natural gas became larger than the share
of coal (24% and 30%, respectively). For non-EU Members,
from 2001 to 2006, the contribution of coal was reduced
from 40% to 37%, meanwhile, natural gas share increased from
10.5% to 12%.
Estimation results for the price of natural gas are positive in
the FEVD models for all countries and for EU Members. This effect
was expected. The combined-cycle plants of natural gas play a
very important role in energy generation, since it is less
environmentally damaging than oil or coal. The former option is
also an answer to the oil price increases. To this end, higher prices
of natural gas promote the RE focus. Due to the small contribution
of natural gas in non-EU Members, this effect of natural gas price
is not clear.
As expected, the effect of geographic area on the RE is positive,
both for EU Members and for non-EU Members. The use of this
variable can be questionable, since more area does not necessarily
mean better intrinsic characteristics for improving the exploita-
tion of RE sources.
We used a proxy of potential of RE, which is invariant over
time. We did not follow the perspective of Carley (2009), which
considers the potential of wind invariant over a period of 9 years.
Since technology development makes the potential of each source
changeable, for the time span we used, that option seemed
unreasonable.
The effect of continuous RE focus was verified for EU Members
and was not for non-EU Members. These results suggest that EU
Members commitments with regards to RE persist over time.
To be an EU-Member in 2001 (shift dummy DEU01) is
significant to the RE commitment. However, EU membership
alone is not enough to assure strong commitment to RE use. This
result may be influenced by the fact that in Iceland renewable
sources weight is very high, as well as in Estonia, Slovenia, Turkey
and Switzerland. This evidence strongly supports the EU decision
to create a directive promoting renewable sources use (Directive
2001/77/EC). A country integrated in the EU, by itself, is not
enough to promote the switch to strong RE use, a brawny
institutional stimulus is also required.
6. Conclusions
We have shed some light over drivers promoting RE use, by
applying panel data techniques to twenty-four European coun-
tries for the 1990–2006 period. We started by considering all
countries together. We control if each country belongs to the EU,
in the year of the Directive 2001/77/EC. The estimates are mostly
in line with the expected results. The analysis reflects the
diversity of countries. The estimation suggests that the EU’s

Table A1
Data, sources and descriptive statistics.

Time
Variable Definition Source Type Obs Mean SD Min Max
variant

Contribution of renewables to
CRES energy supply (% of total primary OECD Factbook 2009 cont var 408 0.111502 0.1420067 0.002 0.753
energy supply)
CO2PC CO2 per capita (kg/cap) Eurostat, December 2008, EC, DG TREN cont var 408 10244.1 4699.821 2488.11 33363.39
ENERGPC Per capita energy (kgoe/cap) Eurostat December 2008, EC, DG TREN cont var 408 4168.576 2081.574 930 14290.2
IMPTDP Import dependency of energy (%) Eurostat December 2008, EC, DG TREN cont var 408 51.91407 28.27717 -50.83 99.8
Ratio between electricity generation coal (TWh)
Importance of coal to electricity
SCOALEG and total elect. generation (TWh). Eurostat cont var 408 0.3310539 0.2771877 0 0.97
generation (%)
December 2008, EC, DG TREN
Importance of oil to electricity Ratio electricity generation oil / total elect.
SOILEG cont var 408 0.0663725 0.0958427 0 0.51
generation (%) Generation. Eurostat December 2008, EC, DG TREN
Importance of gas to electricity Ratio electricity generation gas / total elect.
SGASEG cont var 408 0.1567402 0.1701088 0 0.76
generation (%) Generation. Eurostat December 2008, EC, DG TREN
Importance of nuclear to Ratio electricity generation nuclear / total elect.
SNUCLEG cont var 408 0.2031863 0.2274193 0 0.78
electricity generation (%) generation . Eurostat December 2008, EC, DG TREN
2 United Nations Statistics Division, Demographic
AREA Surface area (km ) cont. invar 408 201.6116 209.7694 2.586 783.562
Yearbook
Coal price (US dollars per tone,
COALP BP Statistical Review of World Energy 2009 cont var 408 42.36733 10.36378 28.5785 67.2906
1995)
Natural Gas price (US dollars per
GASP BP Statistical Review of World Energy 2009 cont var 408 3.4116 1.367225 1.7868 7.5777
million Btu, 1995)
Oil price (US dollars per barrel,
OILP BP Statistical Review of World Energy 2009 cont var 408 33.68838 13.04982 17.3219 69.5805
2008)
DCONT CRES greater than or equal to 10% dummy rcv 408 0.3578431 0.4799542 0 1
DEU01 EU’s member in 2001 dummy invar 408 0,625 0,4847173 0 1
Real gross domestic product World Bank World Development Indicators, and
GDP cont var 408 510.3501 707.5579 6.75 2883.12
(billions dollars, 2005) International Financial Statistics of the IMF
 A.C. Marques et al. / Energy Policy 38 (2010) 6877–6885
membership, in 2001, holds significance in the explanation of RE
use. In accordance, we estimated a model for the group of EU
Members and a model for non-EU Members. This option appears
to be adequate for the analysis, and the results reveal strong
consistency and robustness.
The effects of lobby pressure, energy self-sufficiency, CO2
emissions and income are important drivers of RE deployment in
European Countries. In short, the lobby of the traditional energy
sources restrain renewable deployment, as well as the CO2
emissions; and the aim of reducing energy dependency promotes
the use of renewables. For EU Members, income appears to
support the investments in renewables. We contribute to the
knowledge about drivers towards renewables, by studying
European Countries and by applying panel data techniques.
Despite the robustness of our results, after 2006 many changes
arise. Looking for the RE use: (i) oil price boom and bust; (ii)
increase of social and political pressure for fast developments in
clean energy; and (iii) financial crisis, which requires adequate
government measures to stimulate the economy. The industry of
renewables (namely solar and wind power) could be important to
generate employment and to stimulate growth. Possibilities for
further research are: (i) extension of the time horizon to include
more recent years; (ii) consideration of social and political
measures; and (iii) analysis of the impact of the industry of
renewables in the economy.
Acknowledgments
Financial support from the NECE – Research Unit in Business
Science and Economics, sponsored by the Portuguese Foundation
for the Development of Science and Technology – is gratefully
acknowledged. We thank two anonymous reviewers for useful
comments.
Appendix A
See Table A1
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