Determinants of greenhouse gas emissions: A new multiplicative approach analysing the impact of energy efficiency, renewable energy, and sector mix

The mitigation of climate change is the main issue for environmental policymakers. A large number of authors analysed the impact of various factors on greenhouse gas (GHG) emissions. In this paper, we proposed a multiplicative approach to use 2- and 3-way interactions simultaneously in order to analyse the effects of energy efficiency, renewable energy and sector mix as the moderators that shape the economic activity - environmental degradation nexus. The results encompassing global panel data show that the turning point increased from 1990 to 1995 to 2002-2007 and decreased afterwards. Considering the analysis of moderators, a high share of agriculture and industry sectors make the curve flat with a positive slope and a high level of economic activity was associated with more GHG emissions with no turning point. The marginal effect of energy efficiency to reduce the negative impact of agriculture and industry sectors was growing. Meanwhile, the marginal effect of renewables to reduce the negative impact of agriculture and industry sectors was diminishing. Service sector and energy efficiency, service sector and renewables worked as the substituting forces reducing GHG emissions with a diminishing marginal rate of substitution. Therefore, this study confirms that the economic activity - environmental degradation relationship is very complex and further studies should consider the role of the moderators of this nexus.