Better clean or efficient? Panel regressions

Most national and international climate agendas promote energy efficiency and fossil to renewable energy substitution as key future policy directions. This paper surveys macro-energy-emission-output panel assessments and shows that previously estimated carbon response functions present diverging shapes with less evidence on the confounding role of development. This study applies a multivariate regression equation and both Pesaran ( 1995 ) and Pesaran ( 2006 ) mean group estimators with common correlated effects to illustrative samples of countries with data covering five decades. For all groups, long-run panel coefficients show that energy efficiency improvements associate with larger negative carbon responses than fossil-to-renewable energy shifts. Estimates derived from high-income economies are much smaller in magnitude and significance compared to those of developing countries, which is further corroborated by country-level parameters. This implies that least-energy efficient and -green economies can benefit from a wider set of carbon abatement policies.