Environmental degradation, renewable energy and economic growth in European countries: A spatial analysis.

The link between environmental degradation, energy and economic growth has been studied extensively. Energy consumption is an essential input to the economy of a country. However, excessive energy consumption without control may adversely affect the quality of the environment. Previous studies reported different results on the nexus. The classical approaches that assume sphericity of errors (homoscedasticity and no autocorrelation) might not be valid as many data are spatially dependent/ correlated. The ignorance of such spatial effects might lead to misleading results. Hence, this study utilises the spatial panel models incorporating the spatial effect in examining the nexus. This study has three main objectives: i) to examine the relationship between environmental degradation, output growth and renewable energy, ii) to examine the spatial effect in the nexus and iii) to determine whether spatial models provide consistent results using different spatial weight matrices. Data from 25 European countries from 2000 to 2018 are used for the analysis. In particular, the existence of the spatial effect is examined and modelled by considering different spatial models, namely the spatial Durbin model, spatial autoregressive model and spatial error model. The localities and distance among the spatial units are identified through the weight matrix (orders 1 and 2). The results reveal that SDM using the weight matrix of order 2 is the best model compared to other models. The main findings show that renewable energy is associated with lower environmental degradation. In addition, there are also spatial effects from renewable energy that contribute to reducing environmental degradation in a country. Furthermore, different weight matrices give relatively consistent results. The spatial effect implies that the neighbour countries highly influence the nexus of renewable energy in correcting the environmental problem. The effort of an authority to reduce environmental issues through adopting renewable energy to replace non-renewable energy might stimulate the same policy implementation from the neighbour countries. The helps to strengthen the implementation and effectiveness of the policy in the neighbourhoods. [ABSTRACT FROM AUTHOR]