The carbon emissions pathway, the energy transition effort and policy uncertainty

Abstract

This dissertation provides an integrated analytical framework that links regional carbon emissions dynamics, country-specific transition efforts and global uncertainty into a coherent understanding of the decarbonization strategies and pathways. It contains three core essays that collectively address issues in environmental and climate economics. The first essay tests the convergence hypothesis across Asian economies and identifies how fossil fuels, renewables and energy intensity shape convergence during the period under study. Evidence from the regional data indicates that per capita carbon emissions are diverging under the assumption of cross-sectional dependence, meaning that despite regional efforts and policies to curtail the growth of carbon emissions, which are assumed to be the major driver of climate change, the per capita emissions disparity exceeds the conventional limit. For individual countries under the assumption of a structural break, 31 countries show convergence, underscoring the efforts towards decarbonization, especially the transition to clean energy. In addition, the fossil fuels and energy intensity are increasing functions of the carbon emissions convergence. These findings revealed that the shocks to emissions are transitory rather than permanent. Renewable energy in the model exhibits a negative but statistically insignificant relationship with emissions convergence. This suggests that current levels of renewable energies in the region are not enough to make a measurable dent in the regional emissions trajectory. Building on this, the second essay examines country-level energy transitions to renewable sources, with special attention to the case of biodiesel. The intent of this chapter is to examine market conditions and long-term sustainability, as regulations mandate biodiesel blending in the transportation sector to support a sustainable environment. Empirical findings from estimating the iterative 3SLS revealed that biodiesel demand in Indonesia is price-inelastic, meaning price changes have a limited influence on consumption, similarly, supply is price inelastic. However, supply is more responsive to price changes than demand. The study uncovers a persistent market disequilibrium characterized by excess supply, consistent with government interventions to promote biodiesel adoption. In addition, the outcome of the bound statistics indicates a long-run equilibrium relationship in biodiesel blending in Indonesia. The third essay examines whether climate policy uncertainty moderates the nexus among carbon emissions, energy demand and supply. The goal is to demonstrate how uncertainty distorts the energy demand-supply nexus and weakens carbon emissions mitigation effectiveness in the long run. Undoubtedly, efforts to mitigate climate change via regulations and policies face setbacks resulting from uncertainty in the policy implementation and global commitment. Within the empirical space, there was no previous attempt to examine the empirical implication on how climate policy uncertainty could moderate the relationships that exist between carbon emissions, energy demand and supply. This study further examines the outcome among the heterogeneous income group. The coefficient of the moderating variable is found to be negative in the global and low-income samples, signifying that under high uncertainty, the link between emissions and energy demand and supply becomes weak, possibly due to inefficiency, delays in investment and shifts in the energy mix. Also, the nexus could be associated with the global energy system transformation led by the advanced and emerging economies. However, for high-income and middle-income countries, the impact of the moderating climate policy uncertainty turns out to be positive, suggesting that policy uncertainty amplifies the carbon-intensive effects of energy supply and demand. Regulatory weaknesses and uncertainty could delay the investment in renewable technologies and elongate the dependencies on the existing fossil fuel infrastructure in the high-income countries. In the case of middle-income countries, weak institutions, inadequate renewable infrastructure and limited green financing intensify reliance on low-cost carbon-intensive energy systems.