Does renewable energy consumption improve environmental efficiency in 121 countries? A matter of income inequality

Renewable energy is a key component of the Sustainable Development Goals (SDGs) set by the United Nations, and is an important factor in facilitating the energy transition and carbon neutrality of countries. This study aims to examine the interaction between renewable energy consumption and carbon efficiency to achieve the goal of carbon reduction for environmental sustainability. This study measures the carbon efficiency globally and countries in each income group through the data envelopment analysis method. Then, this study empirically analyzes the impact of renewable energy consumption on carbon efficiency by controlling for heterogeneity, cross-sectional dependence and generalized moments estimation. The results show that (1) carbon efficiency enhances with the increase of income level, and the global carbon efficiency improvement is mainly due to the change of technological progress. (2) There is a weak improvement in scale efficiency in LI and LMI, dragged down by the decline in pure technical efficiency, which is the opposite of countries at higher income levels. (3) Renewable energy consumption has a positive effect on the improvement of carbon efficiency at all income levels, and there is a two-way causal relationship between renewable energy consumption and carbon efficiency. The effect of renewable energy on carbon efficiency is most significant in countries with middle income levels. Policy makers in each country should promote the renewable energy development to achieve energy transition and reduce carbon emissions. In addition, this study emphasizes that countries should consider the interaction between the renewable energy consumption and income level in ensuring sustainable development.