DISSERTATION

Does inflation Moderate Demand for Renewable Energy?

Jaineel Dalal

Symbiosis School of Economics, Pune

[Link].2020@[Link]

Anay Goyal

Symbiosis School of Economics, Pune

[Link].2020@[Link]

Mentor: Prof. Nawazuddin Ahmed

Symbiosis School of Economics, Pune

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ACKNOWLEDGEMENT

We would like to take this opportunity to express and to extend our thanks
and warmest gratitude to Symbiosis School of Economics for having given us
the opportunity to conduct this primary research. We thank Prof. Nawazuddin
Ahmed for his mentorship in th is dissertation project, as well as his consistent
assistance & expertise. Without his active support, valuable advice, whole -
hearted guidance and sincere cooperation, the framework of our study would
have been highly inadequate and rudimentary. We also ex tend our
appreciation for our entire faculty group, without whom it would have been
extremely difficult for us to prepare the project in a time -bound framework.
We would also like to thank our colleagues from Symbiosis School of
Economics who provided thei r insights which assisted in this research. We also
express our gratitude to all the respondents for their valuable time and
cooperation in filling out our primary survey.

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ABSTRACT

India and the OECD countries are looking at renewable energy as a viable solution
to energy access, security, and climate change. These regions have abundant
sources of renewable energy like the sun, wind and wave. However, they also need
investment to produce it. This study examines the factors that drive renewable
energy demand in India, OECD countries, and other countries to inform investment
and policy decisions. To estimate demand, fixed effect panel data model is used
with a comprehensive set determinant. Results show that energy prices, carbon
emissions per head, and real income per capita are the main drivers of renewable
energy use in these regions. To attract the necessary investments, it is
recommended that policies encourage commercial sources for renewable energy.

INTRODUCTION

Energy is a key component of any country's economic growth. Energy can be

classified as either renewable energy or non -renewable. Although there has been
much research into the relationship between non -renewable energies and economic
growth, no studies have been done to link renewable energy with inflation. This is
because it does not consider other aspects. Many studies have shown that non-
renewable fuels like fossil fuels are responsible for the development of many
countries. However, there have been many backlash against the use of
nonrenewable energies due to environmental concerns and carbon
emissions. Although there has been a lot of research on carbon emissions and
renewable energies, economic development and the connection between green
energy and economic development has not be en much discussed. Recent studies
have attempted to establish a link between the two. Some have shown that green
energy can lead to economic development, while others have found that renewable
energy can be used to generate economic growth in the future. Renewable energy
can not only lower carbon emissions, but also significantly reduce energy costs. As
mentioned above, these studies did not address economic risk like
inflation. Unstable economic conditions are one of the major causes of economic

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risk. An unstable economic environment can make it more difficult to use green
energy and reduce its dependence on oil. India, which is not as resilient to oil
shocks as other countries but has the financial strength to invest in renewables,
could reduce its dependence on fossil fuels. The prices of crude oil, coal, and other
commodities are highly volatile. It has a severe effect on the country's
inflation. Although the CPI weightage for Energy is approximately 6.84%, and
WPI around 13.22%, its volatile nature can c ause households to live at higher
costs. Economic risk is a key factor in the relationship between renewable and non -
renewable energies.

After the pandemic, and other global issues like the Russia -Ukraine War, inflation
saw a dramatic rise. It soared far beyond targets across economies around the
globe, prompting major policy changes at many central banks around the globe.

Economic growth is a long-held goal for every economy. It has been viewed as a
solution to poverty, unemployment, and equity issues. Economic growth improves
the standard of life and helps to develop human capital. Further, economic growth
is determined by energy. Energy is the key to society's success. “Energy is
essential for heating, lighting, transport, as well as the transformation of inputs
into outcomes. Energy is therefore a key factor in economic development. Energy
issues such as the 2008 and 2009 oil price crises, climate change, and possible
depletion of fossil fuel sources, offer an opportunity for the world to reflect on
energ y issues and consider how they can limit economic growth. These factors and
others have made energy access a major obstacle to economic development in
India, OECD Countries, and other countries. Access to modern energy is essential
for development. Energy has been shown to be a key component of
production.” India energy Outlook 2021 states that India has made significant
progress in energy production, including bringing electricity to millions and
expanding renewable energy sources like solar power. It still faces many
challenges, including a lack of reliable electricity and reliance on solid biomass
for cooking fuel, struggling distribution companies, and high levels pollution in
cities. In 2019, approximately 99% of the country had access to electricity. India
is the third largest energy consumer in the world, with primary energy sources
being coal, oil, and biomass. The Covid-19 pandemic has slowed energy
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investment and growth, which could lead to loss of hard -earned gains and further
pollute the environment. (India Energy Outlook 2021 and 2021).

The IEA reports that OECD countries have made significant progress in
transitioning to clean energy. Renewable energy accounted for approximately 26%
electricity generation in 2018, with OECD countries accounting for about
26%. Many countries have set ambitious targets for renewable energy adoption as
well as emissions reductions. The OECD aims at carbon neutrality by 2050. The
COVID-19 pandemic caused a decline of energy demand and investment. This
presents a chance for countries to invest into resilient and sustainable energy
systems. To accelerate the transition from fossil fuels to long -term energy security,
affordability, sustainability, and long -term energy security, governments must
continue to invest in clean energy infrastructures and technologies.

Businesses and economies rely on energy as an essential resource. Excessive

energy consumption can have negative consequences for the environment and
threaten sustainable development and the achievement the Millen nium
Development Goals. According to the World Bank, there is a strong link between
electricity access and poverty reduction. Efficiency and clean energy are essential
for reducing poverty and stimulating economic growth. This is especially true in
rural areas where electricity access can be used to run businesses such as night -
time sewing and hairdressing. Global greenhouse emissions can be significantly
impacted by energy use. It is therefore important to invest in renew able energy
sources that are more reliable and cleaner. Renewable energy sources such as wind,
solar, geothermal, and waste are non -depletable and carbon neutral./ Investing in
renewable energy sources can address concerns about energy security, sustainable
development, and climate change. India and other OECD nations have abundant
renewable energy. This provides modern energy to remote areas and difficult -to-
reach locations. It could even offset the oil imports’ foreign exchange. Investing
in renewables and decreasing fossil fuel use is key to a sustainable energy supply.
This decision has significant environmental, investment, growth, and economic
implications.

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“Global investment in renewable capacity increased to USD 120 million in
2008. The 2008 annual percentage gains in renewable energy show remarkable
achievements, particularly the grid-connected solar photovoltaic capability, which
increased by 70%. Additionally, wind power grew 29%, solar hotwater grew by
15%, small hydro expanded by 8%.” El-Ashry (2012). Renewable energy
investments tend to be concentrated in developed economies such as the European
Union. India and OECD countries rely more traditional, unprocessed forms like
wood fuel, animal fat, and agricultural residues. These energy sources can have
negative health and environmental consequences, such as deforestation and
respiratory diseases. India must harness its modern renewable energy potential,
including solar, wind, and hydroelectric. This requires significant private and
public investments. There are no studies or investment decisions in this area. This
paper fills a research void by examining the impact of energy resource depletion
on renewable energy consumption in India, OECD countries, and carbon
emissions. It employs a dynamic panel data model, random, and fixed effect s
models with instrumental variables. Additionally, it includes a large number of
determinants that determine renewable energy demand. Finally, it offers policy
recommendations to encourage sustainable renewable energy consumption in both
regions.

RELEVANCE OF THE STUDY

The pandemic saw governments and central banks around the globe give
economic support to the country through relief packages. To counter the increase
in money supply, the central banks had to raise interest rates. However, the
central banks kept delaying this as there was only marginal inflation growth and
strong economic growth. However, the crude oil price rose sharply after Russia
declared war against Ukraine in March 2022. In the wake of this, governments all
over the globe felt the need for renewable energy to replace their dependence on
fossil fuels. While some governments passed bills to encourage green energy,
others made promises. This resulted in the creation of the idea for the
[Link] study will provide valuable insigh t into the potential economic
benefits and drawbacks of switching to green energy sources. It also reveals
potential trade-offs between environmental sustainability and economic
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growth. Your study will add to the body of knowledge about renewable energy
and its effects on economic growth, job creation and environmental
sustainability. Information about the potential benefits and drawbacks of
investing with renewable energy can be a boon for policymakers and other
stakeholders. This study will also help to understand the relationship between
renewable energy consumption and economic growth, job creation, and
environmental benefits - not just in India and OECD, but globally.

Motivation of the study

It is vital to research this topic and determine its relevance in making life-changing
decisions. This thorough investigation provides a comprehensive assessment of the
entire sector and attempts to understand why governments aren’t investing in green
energies due to rising inflation. Researchers hope to create a realistic picture of
the sector's future performance by conducting this investigation.

The research study we have done can help policymakers and stakeholders
understand the potential economic benefits and drawbacks to transitioning to
renewable energ y sources. It also provides valuable insight into how renewable
power consumption is related to key economic indicators. Your study will help
guide the development of policies and regulations that promote sustainable
development and economic growth by examining how green energy investments
affect inflation rates.

Economic factors influencing renewable energy demand-

 Inflation- Inflation acts as a trigger for the present governments of the developing
countries who are heavily dependent on imports for their energy demand. Not only
it acts as a trigger for developing countries but also it acts for developed
countries.

 Forex rates- As the currency of a country devalues, its cost of import increases. As
a result, for a country whose 40-50% of imports are derived from energy demands,

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 it weakens its economy. This acts as another trigger for government to encourage or
spendon green energy.

 Trade Balance- As the trade deficit of a country increases. The countries try to figure
out a way to reduce their deficit. When a country which is dependent very much on
imports for energy will try to reduce its energy imports over a period. As a result,
tradebalance also acts as a driving tool for government spending in green energy.

LITERARTURE REVIEW

The Policy for Renewable Energy was established to reduce carbon emissions and
limit the negative environmental consequences of energy. consumption. “India has
set a lofty goal to achieve 175 GW renewable energy capaci ty by 2022. This
includes 100 GW from solar and 60 GW from wind. ” The government has
implemented a variety of policies to achieve this goal, including Jawaharlal Nehru
National Solar Mission (National Wind Energy Mission) and National Bioenergy
Mission (National Bioenergy Mission). Financial incentives such as capital
subsidies, accelerated deductions, and tax exemptions encourage green technology
investments. Net metering policies enable households and businesses to return
excess renewable energy into the [Link] green energy policies have been
implemented by OECD countries. The European Union, for instance, has set a goal
to reach 32% renewable energy share by 2030. This is through policies like the
Renewable Energy Directive, which sets binding renew able energy goals for every
member state, and the Emissions Trading system, which places a price upon carbon
emissions. Certain states in America have adopted renewable portfolio standards
that require a certain amount of electricity from renewable sources . The federal
government also provides tax credits and loan guarantee to encourage these
investments.

Both India and the OECD have adopted various policies to encourage green energy
use. These policies include financial incentives, net -metering, renewable energy
targets and emissions trading systems. These initiatives offer a framework to
accelerate the transition towards renewable energy and reduce carbon emissions.

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“The data envelope analysis is applied to 45 economies by Chien and Hu [10] to analyze the
effects of renewable energy on the technical efficiency of 45 economies over the period 2001–
2002. They find that an increase in the use of renewable energy improves an economy's
technical efficiency while an increase in the use of traditional energy (fossil fuel) decreases
technical efficiency.” (Chien, 2008) According to them increase in renewable energ y
usage improves the technical efficiency of economy. An increase in traditional
energy i.e use of fossil fuels and cow dungs will lead to decrease in technical
efficiency.

Sadorsky did a 2014 study on the consumption of renewable energies in emerging

countries through panel cointegration. These countries' per capita consumption of
renewable energy was primarily driven by an increase in real GDP per person and
increased CO2 per head. Oil price increases, while having a less significant impact
on renewable energy consumption, have a more negative effect. According to the
study, an increase in real income per person leads to an approximately 3.5%
increase in renewable energy consumption per head in emerging economies. Long-
term estimates of renewable energy consumption price elasticity were also found
to be around 0.70. This is consistent across two panel cointegration estimators.

Sadorsky did a 2015 study that examined the relationship between renewable
energie consumption and economic growth in G7 countries. He used a panel-
cointegrated FMOLS to determine that an increase of real GDP per person results
in an 8.44% rise in per capita energy consumption. A similar result is obtained for
an increase in carbon dioxide per capita which results in a 5.23% increase in per
capita energy consumption. These results indicate that renewable energy
consumption is positively related to economic growth in these G7 countries, and
carbon emissions have an impact on its level. (Sadorsky, 2009)

Bowden and Payne carried out a 2007 study to examine the relationship between
residential renewable energy use and economic growth in the US, from 1946
through 2006. The results showed a unidirectional causal connection between
residential renewable energy usage, economic growth, and they further
investigated by Apergis & Payne to uncover both short - and long-term causal

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connections. Both studies indicate that renewable energy consumption positivel y
correlates with economic growth. ([Link], 2010)

Recent studies have explored the relationsh ip between renewable energy

consumption, different factors, and many others. Marques and colleagues. This
topic was the focus of Marques et al. (2013). A study of 24 European countries
from 1990 to 2006 revealed that the fossil fuel lobby and CO2 emissions had a
negative effect on renewable energy consumption while increasing energy self -
sufficiency encouraged it. (Marques, 2010) Menyah and WoldeRufael (Kojo
Menyah, 2010)studied the US between 1960 and 2007. They found no causality in
renewable energy consumption and carbon dioxide emissions. There was however
a positive correlation between GDP growth and renewable energy
consumption. Apergis & Payne (Nicholas Apergis, 2011) analyzed 6 Central
American countries between 1980 and 2006. “They found bidirectional causality
in renewable energy consumption and economic growth, both short -term and long-
term, using panel cointegration techniques. These studies show the complex
connection between renewable energy consumption and political, socioeconomic,
and country-specific variables.” This is why more research is needed in this area.

Two distinct trends emerged from our review of the literature. First, most studies
on renewable energies have focused on developing and emerging economies. Very
few studies have examined this topic in developing countries like India. Many of
these studies used a multivariate framework to examine the causal relationship
between renewable energie consumption and economic growth. This research is
becoming more important due to rising concerns about energy security and global
warming. According to the International Energy Agency (IEA), renewable energy
will grow rapidly between 2010- 2030. While much has been written about the
relationship between renewable energy consumption, economic growth, and
renewable energy demand, very little is known about this factor in India and OECD
[Link] study uses econometric techniques to analyze these elements.

The International Renewable Energy Agency (IRENA), has recognized India as an

important factor in the advancement of renewable energy. India has a vast potential
for wind and solar power. Therefore, India must embrace renewable resources to
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meet its sustainable development [Link] highlighted the need to increase
investment in India's renewable energy sector in order to meet these goals. This
would allow India to meet its growing energy needs sustainably. IRENA also
acknowledged India's remarkable progres s in renewable energy deployment. B y
2021, it will account for almost a quarter India's total installed [Link]'s
commitment to renewable energy is inspirational. IRENA's recognition of this fact
highlights the potential for expansion in this area. India's increased investment in
renewable energy is not only a benefit, but it also helps to make the world a cleaner
and more sustainable place.

India's population stood at over 1.4 billion in 2022 and is predicted to become the most
populous country in the world in 2023, surpassing China. So, there is high chance that
renewable energy demand will rise substantially in India.

Renewable energy sources are a natural resource and promote energy self -
sufficiency. “This reduces the economic impact of the price and supply viability
of fossil fuels. Renewable energy is a technologically viable option to connect
rural areas with electricity via off-grid or mini-grid systems. This will benefit
remote businesses and enhance education and healthcare. Thirdly, renewable
energy sources are local-based and create jobs in construction, operations, and
maintenance for indigenes as well as the economy. ” Renewable energy is a source
of sustainable growth that is non -depletable and carbon-neutral. The reduction of
the negative impact of energy on the environment will improve productivity as
India's agriculture is largely rain-fed.

India has made incredible progress in the promotion of renewable energy in recent
years. It is now a world leader in this area. Rajesh Kumar claims that India will
increase its installed renewable power capacity from 70,000 MW in 2017 and reach
70,000 by 2018. This would make India the fifth largest country for installed
capacity. (Jan. 2020). India has approved more than 26,000 MW in solar parks
across 21 states, and they have doubled their goal to build 40 GW of such
facilities. The Ministry of New and Renewable Energy has begun to develop green
energy corridors in order to increase transmission infrastructure. Wind power
capacity has increased by 1.6 times. Others include the installation and
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maintenance of small hydro and/or biogas plants, home lighting systems and solar
streetlights, and the training of graduates through the Surya Mitra program. The
government's commitment towards the Paris Climate Agreement, falling costs of
solar panels, as well as supportive policies like tax incentives and subsidies, all
played a part. Qing Wang demonstrated that renewable energy doesn't hinder
economic development in developing and developed countries (Wang 202 0). The
Organisation for Economic Co-operation and Development says India's
commitment towards promoting renewable energy is one reason for the country's
rapid growth in this area. This growth has been possible due to falling costs for
solar panels as well as supportive policies like tax incentives and subsidies. India
has made great strides in increasing its renewable power capacity over the past few
years. The country aims to reach 175 gigawatts of energy by 2022. The
government's efforts to promote clean energy have helped to attract both domestic
and international investment, which has further fuelled its expansion.

Many countries have identified renewable energy as a key driver of economic

growth, including India. Science Direct reports that renewable e nergy can supply
two-thirds the world's energy needs, and contribute to reducing greenhouse gas
emissions. A study has shown that renewable energy and energy efficiency are
crucial elements to efforts to reduce greenhouse gas emission and transition to a
low carbon economy by 2050. (Dolf Gielen 2019,) In order to meet the Paris
Agreement goal of keeping temperatures below 2 degrees Celsius, energy-related
emissions must fall to 9.7 Gt by 2020. This objective can be achieved by renewable
energy.

India is a shining example of how renewable energy can drive economic

growth. The country has made remarkable progress in promoting renewable
technologies thanks to its favorable policies and falling costs. India is now one of
the most rapidly growing renewable energy markets. According to IRENA,
increasing the use of renewable energy sources can help meet growing energ y
needs while also creating jobs, decreasing pollution levels, and improving energy
security (Renewable Energie Benefits: Measuring the Economics).

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Renewable energy growth isn't just restricted to India. According to IPCC, OECD
countries saw a remarkable rise in renewable energy deployment in recent years -
from 6.4% 2000 to 11.6% 2018. This can be attributed to a variety of factors,
including favorable policies, decreasing costs for renewable technologies, and
public support (RENEWABLE ENERGY SOURCES).

Renewable energy is a key driver for economic growth in many countries. India
and other countries are benefiting from supportive policies, falling prices o f
renewable technologies, public support, and other benefits. We can expect
increased economic activity as more countries embrace renewable energy sources.

India and OECD countries have seen significant reductions in CO2 emissions
through renewable energy. In 2018, electricity generation from renewable sources
increased by more than 7%, injecting an additional 450 TWh into their grid. This
is due to favorable policies, falling prices of renewable technologies and
government commitments to clean energy. India's coal-fired power plants emitted
5% less than in 2019. This is due to lower electricity generation and
demand. However, 2021 saw CO2 emissions rise to 80 Mt higher than 2019 levels
because of increased coal use in electricity production.

Renewable energ y has been identified in OECD countries as a key driver of

economic growth. It also provides environmental benefits. This is due to public
support, cost-cutting policies, and supportive policies. The rapidly growing
renewables sector saw the greatest relat ive and absolute drop in emissions in
2020. Although the response to the Covid -19 pandemic was different depending on
where you live, most of the effects were not felt in renewable energy or electric
vehicles. Despite increased renewable energy usage, emis sions have increased due
to the shift towards larger vehicles (Global Energy Review, CO2 Emissions in 2020
and2021). Renewable energy can therefore be used to boost economic growth,
create employment, reduce pollution and increase energy security in India and
other OECD countries.

"Inflation can be driven by rising energy prices. The prices of gasoline, fuel oil,
and utility gas are all rising rapidly. Rising energy prices have a large impact

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 on inflation. WPI index (14.9%) and CPI index (6.8%) have a large weightage
on the fuel and power sectors. It is not just energy, however, ascore inflation
has also increased significantly over the same period. "This appears to be
mainly due to a rise in core goods price inflation. This is a result of the surge
in consumer demand during the pandemic and also reflects the impact on supply
chains." (G yles). One can adopt expansionary fiscal policy particularly to fund green and
renewable energy and, in that way, inflation can be handled. Putting your money in places
where its future value is linked to inflation is one strategy for protecting against future
inflation. Renewable energy investments are particularly appealing inthis context.
Green energy can contribute to economic growth and job creation, which may indirectly affect
inflation rates. Several factors have contributed to the growth of renewable energy in OECD
countries, including favourable policies, falling costs of renewable energy technologies, and
public support. The Inflation Reduction Act (IRA) of 2022, which is the largest investment in
climate and energy in American history, aims to reduce greenhouse gas emissions and make
non-fossil fuel alternatives more accessible for more people. This is expected to lead to
economic growth, job creation, and environmental benefits. While renewable energy has
helped reduce emissions in the power sector, emissions have still risen due to other factors such
as the shift towards larger vehicles.

One report by Birol states that the energy landscape is changing rapidly before our
eyes. This is a historic turning point in the history of an international government
response to a promise to create a safer, cleaner and cheaper energy system.

Inflation and rising energy costs are both consequences of rising energy
costs. Inflation can be reduced by consuming low carbon energy. Fossil fuel energy
is extremely popular.

Renewable energy has the potential to stimulate economic growth and increase job
creation. It can also impact inflation rates. Several factors have encouraged growth
in renewable energy sources in OECD countries. These include favorable policies,
falling costs of renewable technologies, and support from the public. The Inflation
Reduction Act of 2022 (IRA), the largest American investment in climate and
energy research, development and maintenance in American history, aims to reduce
greenhouse gas emissions, and make non-fossil fuel options more affordable for
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more people. This will lead to economic growth and job creation as well as
environmental benefits. Although renewable energy has reduced emissions in the
power sector by reducing emissions, other factors such a s shifting to larger
vehicles have contributed to increased emissions.
Volatility is a characteristic of nature. The highest price increases in the US
Consumer Price Index have been for energy commodities and services. AlJazeera's
report states that the energy crisis is leading to policy changes, and more
investment in green energies amid sanctions against Russia's supply. The world's
transition from fossil fuels to cleaner energy will be accelerated by Russia's
invasion of Ukraine. Russia is the largest exporter of fossil fuels in the world. Due
to European Sanctions, there were cuts in natural gas supplies to Europe and
increased imports of coal and oil. The Global economic outlook The outlook for
Asia and the Pacific has dimmed, and growth is likely to slow further due to the
ongoing impact of Russia's invasion in Ukraine." (Srinivasan 2022). After this war,
crude oil prices touch the sky, and the US introduces the Inflation Reduction Act.

The Inflation Reduction Act of 2022 is a federal spending law designed to reduce carbon
emissions, lower healthcare expenses, and enhance taxpayer compliance. Though there is no
direct correlation between green energy and inflation, the law strives to reduce greenhouse gas
emissions and make non-fossil fuel alternatives more accessible, leading to economic growth,
job creation, and environmental benefits. The bill commits nearly $400 billion in federal
funding for clean energy projects, with tax incentives and loan guarantees encouraging private
sector investment. Furthermore, recipients of many funding streams must demonstrate equity
impacts and invest in domestic manufacturing capacity. The CBO estimates the law will reduce
budget deficits by $237 billion over the next decade. Ultimately, IRA aims to boost US
economic competitiveness, innovation, and industrial productivity - which could indirectly
influence inflation rates by stimulating economic growth.

The energy crisis has shown that there is a pressing need to shift to green
energy. "The energy crise created "a looming danger of recession" because higher
prices caused food security across the globe, and poorer families worried about
their ability to afford energy and food. According to the IEA, 75 million people
who have recently had access to electricity are at risk of losing it due to difficulties
paying for it. Since the agency began tracking the data, the number of people
15
without electricity access around the world has increased for the first time . It said
that nearly 100 million people can now use firewood to cook again. After the event,
some countries have tried to find alternative fuels and sufficient gas storage.
Others have increased oil-fired electricity generation and increased oil prices.

The reality is that policymakers are limited in their ability to address inflation
directly. The focus has been on monetary policies, where central banks raise
interest rates and inject large amounts of money into the economy via borrowing.
This includes the EUR200bn German energy self-rescue plan or the PS200bn in
Britain for tax cuts and a limit on energy bills. The rise in energy prices has made
it impossible for governments and central banks to stop the inflation. Government-
led policies are the only way to reduce volatility in energy prices.

Renewable energy production and deployment require investment. Energy Driven

Inflation is the inflation that is caused by an increase in inflation. Inflation can be
caused by rising energy costs. The report states that volatile fossil fuel prices are
a major driver of inflation and have been known to cause recessions in the
past. Two reasons are cited by the researchers to support the claim that a shift away
from fossil fuels toward renewables will result in stabilizing energy prices. The
first is that renewable energy will drive most of the energy consumption to the
electricity sector. This highly regulated sector has traditionally produced stable
energy prices. The EU plans to Decouple electricity and gas prices, which will
provide them with greater comparative stability. Clean energy transition could also
reduce inequalities in energy burdens for renters and low -income households. Not
only will it reduce dependence on fossil fuels, but also, it will displace fossil fuel
imports, improving energy security. Renewables can replace fossil fuel imports
and improve energy security. Wind and solar are almost always produced and
consumed in the country. They are not subject to price volatility and geopolitical
shocks in the same manner as fossil fuels. Researchers at Oxford Univers ity have
created a new tool to predict energy system changes. This tool estimates that
investing in renewables could save trillions of dollars, even without taking into
account climate damages and co-benefits. (Keating, 2022)

16
A rise in fossil fuel prices is not good news for the economy. Without monetary
policy or inflation rates, fossil fuel price spikes can have a negative impact on the
economy. The historical evidence supports the fact that rising prices for fossil
fuels can cause recession without considering monetary and inflation policy.

Economists and research papers argue that green energy investments will lead to a
higher demand for rare earth minerals such as zinc. These minerals are essential in
corrosion protection and magnets. This will lead to a rise in demand for rare earth
metals like silver and silicon. Rare earth minerals like silicon and silver are very
difficult to obtain, which is why their prices are so high. It is economically
impossible to extract large quantities of these rare metals because they are only
available in a handful of countries like China. All evidence indicates that prices
for the metals mentioned above will increase in the future. But I believe that in the
long-term, alternatives to these metals will be discovered and th eir cost will
decrease. Data from previous years supports this [Link] technology advances
and production increases, the cost of renewable energy is falling rapidly. For
example, solar photovoltaic cost have dropped by 90% in the past ten years. Wind
power also has seen a significant decline in its costs. Although the price decline
has been dramatic and is slowing down, there are still opportunities for further
decreases as more production is increased. Government policies can also help to
reduce inflationary pressures. For example, carbon taxes revenue can be used to
subsidise the poorer members of the population. This is crucial because inflation
has a tendency to have a disproportionate effect on the less-well off, or those with
lower incomes and limited earnings to absorb higher prices for essential goods.

This investment opportunity is attractive as well. Investors will be able to take

advantage of this trend towards green energy. The transport sector has many
examples, as well as battery manufacturers and companies operating in the solar
or wind sectors. Businesses operating in renewable energy sectors such as hydro,
biomass, and tidal could also be attractive. Businesses that offer meaningful green
energy initiatives such as carbon offsets and low -carbon alternatives to existing
products are also attractive investments." (Gyles).

17
Science direct reports that many countries are switching to renewable energy
sources. “The United States, for example, aims to achieve 70% energ y
independence by 2030. Of this 40%, Hawaii will use renewable energy. The United
States emphasizes continuous updates and improvements to energy transition
policies. Electricity and transport sectors have similarities in that their policies
have been expanded repeatedly and their timelines extended beyond their original
targets. China is the world's largest energy consumer and producer, so it plays a
crucial role in the energy transition. China is turning to renewable energy to meet
its increasing energy needs and reduce pollution. China also has targets to reduce
its carbon emissions per unit gross domestic product by 60 -65% in 2030, from 2005
levels. This target is for non -fossil fuels to be 20% of total energy demand by
2030. The global energy transition is also being undertaken by several large energy
users. Russia, which has one of the most significant fossil fuel reserves in the
world, is speeding up the deployment of solar/wind through auctions to create
benefits such as employment, science and energy security for isolated
communities.”

"The literature reviewed above suggests that research on the linear relation
between renewable energy consumption, economic development and economic
growth has yielded fruitful resul ts." (Qiang Wang 2022).

While some papers discuss this relationship while considering various economic risks, no study
has been conducted to investigate the economic factors that influence the demand for green
energy. The current literature discusses green energy demand in terms ofnon-economic factors
such as CO2 emissions and environmental damage. Although there havebeen theories about
using green energy to reduce inflationary pressure, there has not been a quantitative analysis
of it. As a result, the focus of this paper is on the quantitative aspects of economic factors
influencing green energy demand.

RESEARCH QUESTIONS

 Does inflation create demand for renewable energy?

 Is investment cost in green energy outweighed by benefits which it is going to sow

18
 ingoing forward years?
 What is the relationship between renewable energy consumption per capita and
inflation in India and OECD countries, and how do factors such as GDP per capita and
CO2 emissions per capita influence this relationship?
 How do government policies affect the adoption of renewable energy sources in
different regions of the world?
 What are the economic benefits and costs associated with transitioning to renewable
energy sources?
 How does renewable energy consumption impact job creation and economic
development?

RESEARCH OBJECTIVE

 Our research study seeks to investigate the relationship between renewable energy
consumption per capita and economic factors such as consumer price index, GDP per
capita, and CO2 emissions per capita in India and OECD countries. Specifically, we
are asking whether green energy investment will lead to inflation. Our objectives are
to determine whether renewable energy investment causes inflation and identify key
economic variables affecting renewable energy demand. Furthermore, we may want
to consider exploring potential economic benefits or drawbacks of investing in green
energy along with any policy implications our findings might have.
 To examine the impact of renewable energy consumption on economic growth in India
and OECD countries using panel regression analysis.
 To identify the key economic factors that affect the demand for renewable energy in
India and OECD countries and their impact on the growth rate of inflation.
 To compare the economic benefits and challenges of transitioning to different
renewable energy sources such as wind, solar, water, waste, and geothermal energy in
India and OECD countries.
 To analyze trends and aggregate price level and renewable energy demand.

 To study the impact of inflation on renewable energy demand.

19
Research Gap

Current literature studies the relationship between economic development and renewable
energy. While some of the papers talk about this relationship while considering several
economic risks but there is not any study which studies the economic factors that influence the
demand for green energy. Current literature talks about green energy demand with respect to
non-economic factors such as the CO2 emissions, environmental damage. There is a lot of
research on the direct relationship between renewable energ y consumption and
economic factors like GDP. However, very little is known about the indirect effect
of green energy investments on inflation. It would be fascinating to examine how
market competition; policy interventions and technological advances affect green
energy adoption rates and inflation rates.

20
Methodology

1. Data
Annual Data from 1990 to 2019 for 34 OECD countries and India is taken. The data includes
renewable energy consumption per capita indicated in kWH, Consumer price Index with the
base year of 2010, GDP per Capita and CO2 emissions. The data for renewable energy
consumption per capita indicated in kWH is taken from Our World in data whereas data for
other variables is taken from the World Bank. Renewable energy consumption per capita is
the dependent variable. Renewable energy consumption per capita is the amount of energy
from renewable sources that is consumed per person. The per capita energy consumption
from renewables in 2021 includes energy from hydropower, wind, solar, geothermal, wave
and tidal, and bioenergy. As per , the renewable energy consumption (% of total final energy
consumption) varies across countries. In 2021, the US consumed about 293 MMBtu of
primary energy per person, which was the second-lowest amount since 1966 due to the
COVID-19 pandemic. However, the per capita consumption of primary energy varies across
states. For instance, in 2020, Louisiana had the highest per capita total primary energy
consumption, while Hawaii had the lowest. Moreover, Montana had the highest per capita
residential energy consumption, while Hawaii had the lowest, as per. The independent
variables are Consumer price Index with the base year of 2010, GDP per Capita and CO2
emissions. The Consumer Price Index (CPI) is extensively used as a measure of inflation and
deflation, and it is closely tracked by policymakers, financial markets, businesses, and
consumers. The CPI is calculated using around 80,000 monthly price quotes received from
retail and service enterprises, rental housing units, and medical services. The CPI is an
economic indicator that is used to measure inflation, adjust other economic indicators for
price changes, and provide cost-of-living adjustments to wage earners and social security
recipients. However, it has limitations, including not being applicable to all population
groups and not measuring every aspect that affects living standards. There are also limitations
in measurement, including sampling and non-sampling errors, as well as not including energy
costs .

The 35 countries in our sample are- “India, Australia, Austria, Belgium, Canada, Chile,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,

21
Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand,
Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey,
United Kingdom and United States.”

Fig. 1 demonstrates that renewable energy consumption per capita has increased in 30 of the
35 countries, we picked up as sample. Interestingly, the countries with higher per capita gdp
have shown higher growth as compared to countries with relatively lower per capita.
Renewable energy is used in OECD countries and India for a variety of purposes. These
include electricity generation, heating and cooling, and transportation. In electricity
generation, renewable sources such as wind, solar, hydro, and geothermal are increasingly
being used to replace fossil fuels. Heating and cooling can also be done using renewable
energy sources such as geothermal energy, biomass, and solar thermal energy. In
transportation, electric vehicles powered by renewable energy sources are becoming more
popular. Overall, the use of renewable energy in OECD countries is increasing as countries
work to reduce greenhouse gas emissions and transition to a more sustainable energy system.
Because renewable energy is mostly used for power generating in India and the OECD
countries, the study also incorporates statistics on carbon emissions generated as a result of
electricity production. “Global warming is strongly linked to emissions from energy
consumption and production. Furthermore, as emerging countries transition from agrarian to
manufacturing economies, they generate more energy and hence emit more carbon. This
necessitates estimating the impact of energy-related carbon emissions separately.”
(Bhattacharya et al., 2014)

22
 India Australia
1000 10000

500 5000

0 0
0 10 20 30 40 0 10 20 30 40

Czechia Belgium
3000 6000
2000 4000
1000 2000
0 0
0 10 20 30 40 0 10 20 30 40

Canada Denmark
40000 15000
10000
35000
5000

30000 0
0 10 20 30 40 0 10 20 30 40

Austria Finland
20000 20000

10000 10000

0 0
0 10 20 30 40 0 10 20 30 40

Estonia Chile
6000 10000
4000
5000
2000
0 0
0 10 20 30 40 0 10 20 30 40

23
 France Germany
6000 10000
4000
5000
2000
0 0
0 10 20 30 40 0 10 20 30 40

Greece Hungary
6000 1500
4000 1000
2000 500
0 0
0 10 20 30 40 0 10 20 30 40

Ireland Israel
10000 1500
1000
5000
500
0 0
0 10 20 30 40 0 10 20 30 40

Japan Italy
6000 10000
4000
5000
2000
0 0
0 10 20 30 40 0 10 20 30 40

Latvia Lithuania
10000 3000
2000
5000
1000
0 0
0 10 20 30 40 0 10 20 30 40

24
 Luxembourg Mexico
4000 1500
1000
2000
500
0 0
0 10 20 30 40 0 10 20 30 40

Netherlands New Zealand

6000 30000
4000 20000
2000 10000
0 0
0 10 20 30 40 0 10 20 30 40

Norway Poland
100000 3000
2000
50000
1000
0 0
0 10 20 30 40 0 10 20 30 40

Portugal Slovakia
10000 4000

5000 2000

0 0
0 10 20 30 40 0 10 20 30 40

Slovenia South Korea

10000 3000
2000
5000
1000
0 0
0 10 20 30 40 0 10 20 30 40

25
 Spain Switzerland
10000 20000

5000 10000

0 0
0 10 20 30 40 0 10 20 30 40

Turkey United Kingdom

6000 6000
4000 4000
2000 2000
0 0
0 10 20 30 40 0 10 20 30 40

United States
10000

5000

0
0 10 20 30 40

Table 1 Renewables per capita descriptive statistics are summarised. The mean during the
sample period and across nations is 6,292.35 kWh. It is positively skewed with a skewness of
3.96. Renewables per capita has very high kurtosis of 19.92 reflecting leptokurtic
distribution. Renewables per capita varies dramatically from the sample of country-years
from as low as 1.84 kWh to 93,577.69 kWh.

Renewables per capita (kWh - equivalent)

Percentiles Smallest
1% 13.08524 1.844814
5% 119.9063 3.591066
10% 249.063 9.418997 Obs 1,050
25% 881.3614 9.761609 Sum of Wgt. 1,050

50% 2657.033 Mean 6929.35

Largest Std. Dev. 13727.18
75% 5268.273 83408.16
90% 16142.48 84578.2 Variance 1.88e+08
95% 32069.76 84614.59 Skewness 3.962101
99% 78601.54 93577.69 Kurtosis 19.92996

26
Table 2 summarizes descriptive statistics of consumer price index. Over the sample period
and across countries the mean is 84.91 with a standard deviation 26.9. It is negatively skewed
with a skewness of -0.53. Consumer price index has very high kurtosis of 5.12 reflecting
leptokurtic distribution. Consumer price index varies dramatically from the sample of
country-years from as low as 0.071 to 234.43.

Consumer price Index

Percentiles Smallest
1% 2.35212 .0716496
5% 32.51748 .1189229
10% 49.76021 .2 Obs 1,050
25% 71.49928 .2022595 Sum of Wgt. 1,050

50% 88.19087 Mean 84.91298

Largest Std. Dev. 26.97034
75% 104.1071 171.6
90% 110.928 174.9687 Variance 727.3993
95% 115.6868 203.5454 Skewness -.5350386
99% 141.5425 234.4371 Kurtosis 5.120613

Table 3 summarizes descriptive statistics of GDP per capita. Over the sample period and
across countries the mean is $27,473. It is positively skewed with a skewness of 1.41. GDP
per capita has very high kurtosis of 5.88 reflecting leptokurtic distribution. GDP per capita
varies dramatically from the sample of country-years from as low as $301.6 to $123678.1.

GDP per capita (US $)

Percentiles Smallest
1% 442 301.6
5% 2691.196 303.7
10% 4141.265 317.6 Obs 1,050
25% 11820.78 346.2 Sum of Wgt. 1,050

50% 23084.42 Mean 27473.25

Largest Std. Dev. 21215.7
75% 39574.54 119025.1
90% 52349.98 120000.1 Variance 4.50e+08
95% 65120.39 120422.1 Skewness 1.416597
99% 107475.3 123678.7 Kurtosis 5.880664

27
Table 4 summarizes descriptive statistics of CO2 Emissions. Over the sample period and
across countries the mean is 386788.1 tonnes per capita. It is positively skewed with a
skewness of 4.66. Renewables per capita has very high kurtosis of 25.42 reflecting
leptokurtic distribution. CO2 Emissions varies dramatically from the sample of country-years
from as low as 6930 per capita tonnes to 123678.1 per capita tonnes.

CO2 Emissions

Percentiles Smallest
1% 7570 6930
5% 11110 7120
10% 15290 7150 Obs 1,050
25% 39110 7280 Sum of Wgt. 1,050

50% 86840 Mean 386788.1

Largest Std. Dev. 904035.6
75% 376750 5738290
90% 766600 5748260 Variance 8.17e+11
95% 1206600 5753490 Skewness 4.664875
99% 5558380 5775810 Kurtosis 25.42119

Table 5
Renewa~u GDPper~S Consum~x CO2Emi~s

Renewables~u 1.0000
GDPpercapi~S 0.7680 1.0000
Consumerpr~x 0.7590 0.9949 1.0000
CO2Emissions -0.6333 -0.1576 -0.1625 1.0000

This table summarizes the Pearson’s coefficient among Renewable energy consumption,
GDP per capita, Consumer price Index, CO2 Emissions. The sample period runs from 1990
to 2019 for 35 countries – “India, Australia, Austria, Belgium, Canada, Chile, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland,
Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway,
Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United
Kingdom and United States.” We can see that there exists a strong correlation between
independent variables and dependent variables but there is a correlation between GDP per
capita & consumer price Index. There may rise a problem of multicollinearity. So, we will do
a multicollinearity test and verify.
28
Table 6
Variable VIF 1/VIF

Consumerpr~x 1.26 0.795219

GDPpercapi~S 1.25 0.797015
CO2Emissions 1.01 0.989764

Mean VIF 1.17

The mean VIF is very low. As a result, we can conclude that there is no problem of
multicollinearity.

Table 7

If the null hypothesis is rejected, the data is stationary, according to the Levin Lin Chu test.
The data was not stationary at first, but it became stationary at lag 1.

Table 8

Cointegration in the variables was tested by performing Kao test for panel co-integration. The
null hypothesis that there is no co-integration is rejected. As a result, we conclude that the
variables exhibit a shared stochastic tendency. At first difference, the variables were
discovered to be co-integrated.

29
 2. The Equation
The purpose of this research is to look into the potential factors of renewable energy
consumption in OECD countries and India. The demand for renewable energy is modelled as
a set of explanatory factors

RENi-t = F(CPIi-t, GDPperCapitai-t, CO2Emissionsi-t)

The equation above connects renewable energy demand to the CPI, GDP per capita, and
CO2 emissions. “CO2 emissions are used to measure the link between renewable energy
use in China. We add energy price and aggregate income as potential factors of renewable
energy demand” (Chakravorty et al., 1997). “Increases in energy-related carbon emissions
reduce renewable energy consumption due to the presence of greenhouse gases in the
atmosphere, increasing pollution levels, and, as a result, reduced crop harvests that are
converted into biomass. Furthermore, because there is no recognized technology in the
literature that converts inputs into renewable energy, the linear demand function we
suggest follows the parsimony principle. The use of panel-data regression in energy
demand studies has been limited.”

30
 3. Hausman test

To execute panel regression, we must choose from the Fixed effects model, the Random
effects model, and the Pooled OLS. As a result, we will perform Hausman test to choose
between Fixed effect model & Random effect model.

Consumerpr~x 25.43366 25.23502 .198637 .1607456

GDPpercapi~S .0026607 .0032399 -.0005791 .000266
CO2Emissions -.0026808 -.0026301 -.0000508 .0000736

From our analysis from Hausman, it rejects the null hypothesis i.e. the random effects
model & tells us to go ahead with the fixed effects model. But we will confirm it by
performing the Breusch and Pagan Lagrangian multiplier test for random effects.

31
 4. Breusch and Pagan Lagrangian multiplier test for random effects
Breusch and Pagan Lagrangian multiplier test for random effects helps us to select between
the pooled OLS & random effect model. If the result is Random effects model then we can go
ahead with the fixed effect model & if not then we will need to perform more tests.

From our result from the Breusch & Pagan Lagrangian multiplier test we reject the null
hypothesis i.e. Pooled OLS & accept the alternate hypothesis i.e. Random Effects Model.

32
 5. Model

We select the Fixed effects model. A fixed effects model is a statistical approach commonly
used in econometrics to analyze panel data. In this model, individual-specific effects are taken
into account by including a set of dummy variables for each individual in the regression
equation. By controlling for these fixed effects, the model is able to estimate the impact of
time-varying variables on the outcome variable. This approach is particularly useful when
there is unobserved heterogeneity across individuals that could bias the results. The fixed
effects model is also known as the within estimator or the least squares dummy variable
estimator.

33
Empirical Analysis

From the fixed effects model we can check that Consumer price Index & CO2 Emissions are
significant whereas, GDP per capita is not significant. The adjusted R-Square of the model is
low at 14.79%. The coefficients of Consumer Price Index, GDP Per Capita & CO2 Emissions
are 25.43366, .0026607, -.0026808. It indicates that for every change in Consumer price index
there shall be a change of 25.43366 kWh in Renewable energy per capita consumption. For
one dollar change in per capita GDP there shall be 0.0026607 kWh change in Renewable
Energy consumption. For one-ton per capita change in CO2 Emissions there shall be change of
-0.0026808 kWh in Renewable Energy Consumption per Capita. Notably, Renewable energy
per capita consumption shares a inverse relationship with CO2 Emissions. Although, we
successfully ran the model but there were certain limitations to the model. The model could
have been made more parsimonious by adding more variables. After we ran our model we
realized that if more independent variables were added then the R-square value would have
been better.

34
CONCLUSION

This research study identifies energy resource depletion as well as carbon

emissions, which are key drivers to adopting renewable energy sources. Income
growth is a positive factor in energy consumption, while prices for energy have
an inverse relationship to demand. These findings led to the study suggesting
several policies to encourage renewable energy consumption. They include
removing technological barriers, emphasizing their potential c ontribution to
sustainable development and emphasizing their environmental benefits. The study
also suggests that commercial policies such as feed -in tariffs or solar panels for
individual homes be encouraged to encourage renewable energy consumption. It
also suggests future research into the factors that determine non -commercial and
commercial sources of renewable energy to help develop a strategy to increase
renewable energy demand.

Due to growing demand for renewable energy and the need to reduce carbon
emission, India and OECD countries are important research topics. This panel
regression uses renewable energy consumption per person as the dependent
variable and consumer price index as well as GDP per capita and CO2 emissions
per capita as independent va riables to determine the impact of renewable energy
investments on inflation. The indirect effects of renewable investment on
inflation include market competition, policy interventions and technological
advances that affect renewable energy adoption and prices. The results of your
study will help policymakers formulate effective policies to promote renewable
energy investment and protect a healthy, sustainable environment. A literature
review found that renewable energy investment does not cause inflation o r
economic growth. RE policies and R&D spendings are in inverse relation to RE
capacity. RE investment has a negative relationship with energy use and carbon
emissions, which highlights the need for strict government regulation.

35
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