The Role of Interaction Effect Between Renewable Energy Consumption and Real Income in Carbon Emissions: Evidence From Low-Income Countries

Abstract

Even though the existing studies have extensively investigated the impacts of renewable energy and real income on carbon emissions, the literature overlooks the role of their interaction effect in the level of emissions. In addition, the studies have usually chosen high-income and middle-income countries as focused group. To fill these gaps in the existing body of energy-environment literature, this study investigates the impacts of real income, renewable energy consumption and their interaction effect on carbon emissions in low-income countries by employing empirical estimations that control different econometric and economic issues such as heterogeneity and cross-sectional dependence. The results reveal that renewable energy mitigates emissions; however, the interaction effect stays positive. The marginal effect of renewable energy on emissions varies with the levels of real income. Policymakers in these economies should implement policies and regulations to promote the adoption and use of renewable energy to mitigate carbon emissions. Besides, this study emphasizes that the levels of renewable energy and real income are not the only panacea to abating pollution, but the interaction effect should be considered in ensuring environmental sustainability.