Determinants of Renewable Energy Consumption among ECO Countries; Based on Bayesian Model Averaging and Weighted-Average Least Square

Abstract

Over recent years, renewable energy sources have emerged as an important component of world energy consumption. Increased concern over issues related to energy security and global warming suggests that in the future there will be a greater reliance on renewable energy sources. Given the role of renewable energy in the discussion of a reliable and sustainable energy future, it is important to understand its main determinants and to draw result implications for energy policy. This paper identifies the key determinants of renewable energy consumption among Economic Cooperation Organization (ECO) countries, over the period 1992-2011. There is a large literature on determinants of energy consumption and several studies have included a large number of explanatory variables. Empirical models of energy consumption are plagued by problems of model uncertainty concerning the choice of explanatory variables and model specification. We utilize Bayesian Model Averaging (BMA) and Weighted-Average Least Square (WALS) to resolve these model uncertainties. We have used not only conventional explanatory variables that have been used in last studies, but also institutional variables to consider the effect of socio-economic environment. The results of this study indicate that the institutional environment proxies, urban population, and human capital are the most important variables affecting renewable energy consumption in the ECO economies. Also the second and third effective variables are the renewables potential which lead to an increase in renewable energy consumption, and Co2 emission which has revers effect respectively. Therefore improving of institutional circumstances and human capital can be useful to renewable energy growth and reducing of detrimental externalities of fossil energy consumption.