Spillover and dynamic effects of energy transition and economic growth on carbon dioxide emissions for the European Union: A dynamic spatial panel model

Abstract

This paper introduces “spatial effects” and “dynamic effects” to investigate the influences of economic growth and energy transition on cross‐country CO 2 emissions movements within the European Union (EU). We apply the fixed‐effects dynamic spatial Durbin error model to empirically gauge the magnitude of the spatial impacts and dynamic impacts for a sample of 26 EU countries throughout 1990–2015. By analyzing the empirical results, we conclude that: (1) Compared with dynamic spatial Durbin error model, the traditional dynamic panel model over‐estimates the parameters because traditional regression methods only capture the direct impacts, and neglect the indirect impacts. (2) A significant positive spatial spillover of CO 2 emissions from neighboring countries to the local country is recognized, justifying the use of our spatial model. (3) Economic growth has positive impacts on CO 2 emissions, while the spatial effects of economic growth exert negative impacts. Moreover, the total effects of economic growth are positive in both short‐term and long‐term. (4) Although the spatial effects of renewable energy are not significant, renewable energy has negative influences on CO 2 emissions. (5) The impacts and spatial effects of natural gas are positive; therefore, its total effects are positive in both short‐run and long‐run. Based on our finding, we provide several policy recommendations, such as the emphasize of cooperation with CO 2 reduction policies, the promotion of green economy and renewable energy, and the substitution of natural gas in the future.