RECESSIONS, THE ENERGY MIX AND ENVIRONMENTAL POLICY - WORKING PAPER ISSUE 18/2023 23
23 October 2023
By focusing on major growth slowdowns and crises (including from major financial dislocations or pandemics), we improve the causal interpretation of the effect of economic activity on energy composition, as it is unlikely that the share of renewables affects the probability of the occurrence of a major slowdowns and crises (indeed, Granger causality tests reject the null that the energy mix affect. [...] In the case of the energy mix variable, the coefficients capture the change in the share of renewables in total electricity h years after the recession relative to a baseline of no growth slowdown. [...] The x-axis shows years after the event, with t=0 is the year of the recession. [...] To address this, we checked the validity of the parallel trend assumption, that is, the assumption that the energy mixes in the treatment and control cases were following a parallel trend before the recession. [...] The results suggest that the share of renewables in total electricity rises strongly in the case of advanced economies, but the results are weaker and quantitatively smaller in the case of EMDEs, though the difference is not statistically different across all horizons.