Public spending on Energy innovations and CO2 impacts: Evidence from selected OECD countries

Abstract

The relationship between public spending on Energy innovations (R&D of renewable and non-renewable energy, and energy efficiency) and CO₂ intensity at constant purchasing power are investigated in this study. A Panel-NARDL model was used for the first time in 10 OECD countries (1990–2020) to evaluate the asymmetric relationship between energy innovative variables and CO₂ impacts in the long and short run. In other words, this study aims to monitor how changes in public spending on R&D for renewable and non-renewable influence CO₂ emissions. The results show that while an increase in the public budget for R&D of renewable energy will decrease the CO₂ intensity in the long run, a positive relationship exists between these variables in the short run. Likewise, the result demonstrates that a cut in public spending on Fossil fuel R&D leads to an increase in the short horizon and a decrease in the long-run CO₂ emissions per unit of GDP. The finding implies the substantial impact of R&D in both renewable and non-renewable energy on reducing CO₂ emissions over time. In addition, CO₂ emissions per unit of GDP respond positively to R&D public spending on energy efficiency. An increase in public expenditure on R&D of energy efficiency can induce economic activity and enhance CO₂ emissions. All in all, the 30 years’ analysis of data from the selected OECD countries substantiates the right strategy of reducing the CO₂ emissions of these countries by applying the public budget to promote R&D in energy sectors. This study results in contrast with those studies that found no relationship between R&D on renewable energy and CO₂ impacts. Significance Statement This paper evaluated the asymmetric impacts of public spending on R&D of renewable energy and fossil fuel, and energy efficiency on CO₂ intensity at constant purchasing power. Although a growing body of research has analyzed the impact of R&D on CO₂ emission, research on the asymmetric effects of R&D public expenditure in energy sectors on CO₂ emission is still narrow. Moreover, by employing Panel Nonlinear ARDL, we delve into the spillover impacts of selected OECD public budget on R&D over the short and long horizons. In addition, we estimate the impacts of both Renewable and non-renewable R&D budgets which help us to explore and compare the effectiveness of budget allocation on R&D with the strategy of reducing CO₂ emission. Finally, this study found how the R&D and technology budget surging and declining in energy sectors would influence CO₂ emission per unit of GDP.