What is a proper energy mix policy to reduce $CO_2$ emissions depending on an economic level?

Abstract

This study seeks to determine the appropriate energy production policy to reduce $CO_2$ emissions as an economy grows. Cultivating environmentally friendly energy sources will likely lead to both economic growth and a reduction in $CO_2$. However, countries may have difficulty maintaining their energy supplies using renewable sources alone due to limitations such as environmental conditions and available technologies. Additionally, gradual changes in energy policy can aid the transition to eco-friendly sources without hindering economic growth. This study offers an energy policy based on the environmental Kuznets curve hypothesis that aims to reduce $CO_2$ emissions. Rather than using GDP per capita as the independent variable, as in most previous studies, multifactor productivity data is utilized to reduce endogeneity. The empirical results show that OECD countries can slowly decrease their reliance on natural gas, bio and waste fuels over the next 20 years as their economies’ grow. Policies promoting the development of these energy sources are effective only in the short term, whereas solar and wind power have been shown to decrease $CO_2$ emissions even as technology and the economy improve. Therefore, an energy mix policy that incorporates a nation’s economy and technological capabilities is necessary to reduce $CO_2$ emissions and achieve sustainable growth.