The Carbon Emissions Impacts of

Renewable Energy Consumption in an

example of a small and oil-rich economy

Javid Aliyev
Importance Objectives Literature review Data Methodology
 Issue
Importance Objectives Literature review Data Methodology

Intergovernmental Panel on Climate Change stated that

1
climate change will approach 1.5°C from 2030 till 2052 if
current situation (conventional energy source usage) continues
on rising at the same speed. (IPCC, 2018)

2 The most remarkable issue among environmental degradation

which leads to climate change is air pollution. It is mainly affected
by CO2 emissions (Zeng et. al, 2017)

3 Rising level of CO2 in air leads to global warming and as a result,

hazardous effects such as desertification (especially in Africa), floods
(mainly in Indonesia), deforestation, erosion (South America) and
others emerge in different parts of the world (Todaro, 2009)
importance Objectives Literature review Data Methodology

• According to Kyoto protocol, initially, greenhouse gas ejections

decreasing objectives were determined for only well-developed
countries.

• However, it was found that the portion of harmful gas ejections of

emerging and developing nations surpassed the developed ones
significantly (Winkler et al. 2002).

• Considering improving countries, a remarkable part of ejections are

due to resource-rich economies. (Hasanov et. al. 2019)
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• Considering the potential detrimental effect of conventional

energy sources and related CO2 ejections, studies in renewable
energy are gaining special popularity and value.

• In this regard, investigations on resource rich countries and their

transition to renewables are of remarkable value.
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• Taking into account the importance of finding ways to reduce

greenhouse gas emissions, currently many researchers are
investigating this topic with the intention of discovering
potential solutions to decrease them.

• One of the best way to reduce CO2 could be increasing

renewable energy consumption, which is a good substitute of
conventional energy.
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• However, there is a debate over the topic of increasing renewable

energy will lead to significant decrease in CO2 emissions or not.
there are 2 main views on this:
• Substitution effect: Whenever renewable energy increases, time
by time it will replace conventional energy. Eventually lower
CO2 emission will be achieved.
• Growth effect: the reason why renewable energy usage
increases is related with economic growth of the country.
Higher economic growth demand higher level of both
conventional and renewable energy utilization. Therefore no
causation.
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Objective

So
To analyze the influence of

. ..
... alternative clean energy
utilization on greenhouse gas
discharge in an example of
small oil-rich economy
 importance Objectives Literature review Data Methodology

Why Azerbaijan?
• the leading oil exporter in Caucasian region and 20 th according to its
oil reserves.
• 24th in oil production, 75th in oil consumption.
• The country set aggressive sustainable development roadmap in
2020
• It liberated its region (Nagorno-Karabakh) which has huge
renewable energy potential.
• No study explored the nexus between renewable energy and CO2
emission for the country.
Source: (Worldometers.info, 2020)
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Under this question following hypothesis were formed:

1. Hypothesis - H(0): Renewable energy has significant decreasing

effect on CO2 emissions in case of Azerbaijan.

2. Hypothesis - H(0): Exports and Imports take an important role in

CO2 estimations.
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High mountain,
rivers and lots of
hydro-, wind, solar
or geothermal
power potential
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Bibliometrics on alternative energy and harmful gas ejections nexus

Source: Scopus.com, (2022)

importance Objectives Literature review Data Methodology

Bibliometrics on alternative energy and harmful gas ejections nexus

Source: Scopus.com, (2022) Source: Scopus.com, (2022)

importance Objectives Literature review Data Methodology

Bibliometrics on alternative energy and harmful gas ejections nexus

a s i ng
e
incr
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Bibliometrics on alternative energy and harmful gas ejections nexus

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Bibliometrics on alternative energy and harmful gas ejections nexus

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Research investigating the nexus between greenhouse gas ejections and

Renewable energy depletion states 3 results:

1 2 3

No
Positive Negative significant
Impact impact impact
(very few)

The effect of The effect of renewable There is no significant

renewable energy energy utilization on CO2 influence of renewable
utilization on CO2 ejections is negative energy utilization on CO2
ejections is positive discharge
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Author Scope Method Result (-)

VECM, Granger
Bekhet and Othman Results revealed that alternative clean energy
Malaysia Causality and
(2018) has negative effect over CO2 emissions
CUSUM
11 South it was detected that REC has a decreasing
Apergis et al. (2015) American PCM method effect on CO2 emission for these eleven
countries countries

the impact of REC on greenhouse gas

Chen et al. (2019) China ARDL
emission is negative
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Author Scope Method Result (0)

Granger absence of causality between REC and CO2
Pata (2018) Turkey Causality emissions

Paweenawat and there is no statistically significant impact of

Plyngam (2017) Thailand VECM clean energy usage on CO2 discharge
panel
Yazdi and Shakouri cointegration there is no causality relationship between
Germany and pair-wise
(2018) renewable energy and CO2 emissions
Granger
causality
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Author Scope Method Result (+)

Selected
Lu (2017) Asian Panel The obtained result was positive, which indicated
cointegration that renewable energy consumption and CO2
countries
techniques emissions are positively related
Mediterran
there is a positive link between greenhouse
Zrelli (2017) ean PVECM emissions and REC
countries
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Literature review Data Methodology

???? . ..
???
What about
Azerbaijan?
 Empirical
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results

Variables
VARIABLES description of variables
CO 2,t represent consumption-based carbon dioxide emissions
RE t represents renewable energy consumption
Yt represents gross domestic product per capita
Exp t represents exports of goods and services
Imp t represents imports of goods and services and
Note: All data obtained from World Bank and cover 1991-2019 years
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1 2 3

ADF Existence of Model

tests Cointegration Results

ADF unit test will be If all variables are I(1), we If desirable cointegration
implement to will test long term co- tests, VECM, DOLS will be
determine whether the movement using Engle utilized to estimate
varaibles are stationary Granger and Johansen relationship
or not tests
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Model specification:
𝒍𝒏𝑪𝑶 𝟐 , 𝒕 = 𝜷𝟎+ 𝜷𝟏 𝒍𝒏 𝑹𝑬 𝒕 +𝜷 𝟐 𝒍𝒏 𝒀 𝒕 + 𝜷𝟑 𝒍𝒏 𝑬𝒙𝒑 𝒕 +𝜷𝟑 𝒍𝒏 𝑰𝒎𝒑𝒕 +𝜺𝒕
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The outcome of unit root tests

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The outcome of cointegration tests

Park’s Added Variables Test Phillips-Ouliaris

4.45609 Tau-statistics -5.4113*(0)

Chi-square Z-statistics
(0.21) -31.851*(0)

Engle-Granger
-5.2978 -27.916
Tau-statistics (0.01) Z-statistics
(0.01)
Notes: p-values are in parenthesis.
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The outcome of DOLS

 Empirical
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Conclusion
results

Conclusion and policy implication:

• Both renewable energy consumption and exports reduce

harmful gas ejections in the long-term, with a 1% upsurge
in alternative, clean energy use and exports leads to 0.26%
and 0.16 % fall in CO2 discharge, accordingly.
• On the other hand, empirical results revealed that higher
level of GDP per capita and imports have a upsurge
influence over CO2 ejections.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• Based on the outcome of the empirical analysis, the

negative effect of increasing renewable energy
consumption on CO2 emission can be explained from the
perspective of substitution effect.
• This means people will meet some portion of their energy
demand through renewable energy. Therefore, the rising
usage of clean renewable energy will substitute and drive
out some portion of conventional energy.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• Eventually, lower level of traditional energy will be needed
for consumption purposes. As conventional energy
resources are main cause of greenhouse gas emissions,
decrease in their usage will lead CO2 emissions to lessen.

• The positive impact of GDP per capita on greenhouse gas

emissions is plausible from economic point of view. This is
because; increasing real production (rise in GDP per capita)
can only be achieved through using more energy.
Therefore, demand for energy will increase during the time
of rising GDP per capita.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• To meet rising energy demand in this period, the country

will try to utilize more affordable energy resources. In the
case of Azerbaijan, oil and gas is more affordable than
renewable energy sources. Therefore, country promotes
the usage of oil and gas reserves to generate energy which
consequently increases CO2 emissions.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• However, to increase the renewable energy consumption,

12 big and 7 small hydroelectric plants were constructed in
Azerbaijan.
• In addition to this, the country built 6 wind, 10 solar, and 6
biomass power plants during 2018-2020 that own an
installed capacity of 420 megawatts (MW) (Bilalova, 2020).
• But to better address the rising energy need, Azerbaijan
should efficiently invest in renewable energy.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• If the country invests highly on renewable energy plants

using its oil revenues, in the near future the cost of
generating renewable energy in these plants could be
competitive with the cost of producing energy from
conventional oil and gas reserves.
 Empirical
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Conclusion
results

Conclusion and policy implication:

• Meanwhile, taking into the account that the pollution or in

other terms environmental degradation in the global world
is rising day-by-day, further costly restrictions can be
imposed on conventional energy use.
• Before having this kind of high and costly restrictions,
Azerbaijan can have immense benefits and advantages if it
becomes among the “first-movers” to the renewable
energy.
 Empirical
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Conclusion
results

Scientific novelty and implications of the research:

• To the best of our knowledge, this research is the first

which analyzes renewable energy and oil price nexus for
Azerbaijan including exports and imports in the model too.

• Considering Azerbaijan’s 2020 sustainable development

roadmap, this paper will give a better insight about the
future of renewable energy plants and their consequence.
 Empirical
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Conclusion
results

Limitation of the research:

• Only annual data for the variables were available

• Secondary data were used
HANK YOU…