Carbon tax: Catalyst or hindrance for renewable energy use in climate change mitigation?

Abstract

This paper contributes to mitigating the debate on whether carbon taxes have positive or negative effects on climate change by presenting an investigation on the relationship between carbon taxes and renewable energy consumption. Taking advantage of the panel CS-ARDL model, we distinctly inspect the dynamics of the CO2 tax–renewable energy consumption nexus in both short and long runs, based on a dataset of 39 economies covering 1991–2019. Our findings suggest that in the short run, a CO2 tax initially impedes renewable energy consumption but promotes it in the long run, with more significant effects observed in advanced economies. Additionally, the marginal effect of a CO2 tax on renewable energy consumption is not influenced by its initial level or change direction. In accordance with our findings, we provide several implications for decision-makers.

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