The Impact of Growth, Inflation and Urbanization on Renewable Energy Consumption in PIIGS Countries

Abstract

In addition to providing environmentally friendly solutions, renewable energy reduces the dependence on non-renewable energy and is considered an important element in ensuring sustainable energy development and solving the problem of energy security. The European Union (EU) has assumed a leading role in the widespread use of renewable energy as an alternative to fossil fuels. However, not every country in the EU has the same performance in the targeted energy transformation process. In this sense, PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain) have an important place in studies on energy transition because of the similar economic difficulties they face and the environmental policies they implement. PIIGS countries are trying to regain economic stability after the 2008 crisis, while at the same time trying to harmonize with the EU’s renewable energy targets. The motivation of this study is to address how macroeconomic factors such as economic growth and inflation shape renewable energy consumption, while simultaneously addressing the urbanization rate as an important factor that directly affects the energy consumption structure. In this way, we aim to address the contribution of PIIGS countries to green consensus targets from a broader perspective from an interdisciplinary perspective. To make these assessments, a seemingly unrelated regression model (SUR) was applied using data on renewable energy consumption, consumer price index, Gross Domestic Product (GDP), and urban population growth for PIIGS countries between 1990 and 2021. The empirical results for Portugal, Italy, Greece, and Spain show that economic growth dampens renewable energy consumption. However, among PIIGS countries, economic growth increases renewable energy consumption only in Ireland. The model also shows that inflation increases renewable energy consumption in all PIIGS countries. The countries where the urbanization rate parameters are significant are Ireland, Greece, and Spain. In all three countries, an increase in the urbanization rate leads to a decrease in renewable energy consumption.