Effects of renewable energy sector development on electricity consumption-Growth nexus in the European Union

The aim of this study is to assess the effect of renewable energy sector development on the relationships between electricity consumption and economic growth in the European Union countries in the period between 1995 and 2015. A panel vector autoregressive model is used for testing Granger causality and estimating impulse-response functions. The results indicate that the relationships between economic growth and electricity consumption depend on the level of renewable energy sector development. The greater the share of the renewable energy sector in the economy is, the more noticeable the mutual dependence between the economic growth and renewable electricity consumption is. In countries with relatively well-developed renewable energy sectors renewable electricity consumption boosts the economy and vice versa. In the remaining countries economic growth and electricity consumption are independent. Empirical findings suggest that policymakers should develop strategies to implement clean energy policy aimed at stimulating the development of the renewable energy sector to support economic growth.