Impact of environmental taxes, hydroelectricity consumption, economic globalization, and gross domestic product (GDP) on the load capacity factor in the selected European Union (EU) member countries

Abstract

The intersection of economic development, energy dynamics, environmental policy, and environmental sustainability presents complex challenges for European Union (EU) countries. This study investigated the impact of environmental taxes, hydroelectricity consumption, economic globalization, and gross domestic product (GDP) on the load capacity factor (LCF) in the 10 EU member countries (including Austria, Finland, France, Germany, Italy, Poland, Portugal, Slovakia, Spain, and Sweden) using data from 1995 to 2020. To ensure the reliability and validity of the data, this study applied several advanced econometric tests, including the Pesaran and Yamagata slope heterogeneity test, Pesaran cross-sectional dependence (CSD) test, second-generation unit root test, and Westerlund cointegration test. The data showed important statistical issues such as slope heterogeneity across panels, CSD, mixed-order unit root structures, and long-run associations between variables. To address these issues, we applied an augmented mean group (AMG) model as the main regression approach, and used the pooled mean group-autoregressive distributed lag (PMG-ARDL) method to check the robustness. Specifically, the AMG results indicate that a 1.000% rise in hydroelectricity consumption results in a 0.048% rise in the LCF, while a 1.000% increase in environmental taxes leads to a 0.175% increase in the LCF. Contrary to this, a 1.000% increase in economic globalization results in a 0.370% decrease in the LCF, and a 1.000% increase in GDP leads to a 0.850% decrease in the LCF. Environmental taxes have a more beneficial impact on the environment, and GDP has the most detrimental effect. The findings provide empirical evidence on the role of environmental taxes, hydroelectricity consumption, economic globalization, and GDP in driving the LCF. Additionally, the findings provide valuable information to policy-makers, academicians, and stakeholders shaping energy and environmental policies in the 10 EU member countries.