Energy consumption, CO2 emissions and the economic growth nexus in EU countries over the period 1995-2020

In this study, we explore the intricate relationships among energy consumption, CO2 emissions and economic growth by employing panel vector autoregression (PVAR), panel Granger Causality and panel impulse response functions to data on energy consumption (and its various sub sources), carbon dioxide (CO2) emissions and real GDP per capita in 26 European countries over the period 1995-2020. The results of the analysis reveal heterogeneity in terms of the effects of the different sources of energy consumption on economic growth and emissions. In addition, there is bidirectional causality between total energy consumption and economic growth, providing evidence in favor of the feedback hypothesis. Nevertheless, renewable energy consumption does not statistically and significantly promote economic growth. Last but not least, we find an N-shaped environmental Kuznets curve (EKC), indicating that, after a level of economic growth, the ongoing growing process exacerbates greenhouse gas emissions. Thus, our findings indicate that EU nations will not be able to recover from environmental degradation despite the increasing, albeit still at low levels, renewable energy usage. As a result, current government plans in EU nations to encourage the use of renewable energy as a means of attaining long-term growth are called into question.