1. Introduction
Economic progress is imperative for every country to bring ease to the lives of the people living within the country’s boundaries. However, increased economic activities and industrialization come along with the greater risk of environmental degradation as it may cause land, air, and water pollution. Air pollution is the most dangerous among pollution types. It spreads to a large area and needs to be cared for with proper regulation with the inclusion of chronological research evidence. The industrial sector of any developed country depends largely on fossil fuels for their energy needs, causing CO
2 emissions that lead to environmental degradation, bringing different ecological and health problems for living beings. At the same time, the other disadvantages related to it are energy issues triggered by variations in oil prices, global warming, and acid rain. To achieve sustainable growth and development, many countries are making efforts to replace non-renewable energy sources with renewable ones mainly to deal with the problem of environmental degradation. Among the 17 SDGs, climate change and green growth are some of the most challenging tasks for policymakers in both developed and developing countries to achieve, as it needs reforms at a broader level [
1]. However, in recent years, investment in renewable energy showed a scintillating rise over the years. According to a new estimate from Energy Transition Investment Trends 2022 published by Bloomberg NEF (BNEF), the total global investment in renewable energy hit
$755 billion in 2021, showing an increase of 27% compared to the figures of 2020, within which renewable energy projects, for example, solar parks and wind farms, received the most investment in 2021, making a total investment of
$366 billion. It is also observed that countries are trying to bring about a transition from fuel-based cars to electric cars. As per the International Energy Agency (IEA), worldwide electric car revenue has increased by 140% in the first quarter of 2021 as compared to 2020. China topped the ladder in the energy transition by selling electric cars, followed by Europe, whereas sales in the United States doubled. Electric car investment and renewable energy industries have driven up the global investment pattern toward low-carbon energy.
China, the world’s 3rd largest country in standings of land area with the largest population in the world, has emerged as an economic giant in recent years. Increased oil consumption is directly related to China’s sustained economic growth. China is using around 13% of the world’s oil per day, which is the second-largest consumption in the world after America. It is evident from the IEA 2021 that China is responsible for 33% of the CO
2 emissions in the world, the most among any country, with 11.9 billion tonnes of CO
2 emitted in 2021, which makes it challenging to achieve the targets of energy security, low-carbon atmosphere, and environmental preservation, all being hampered because of continued high economic expansion. To deal with these consequences, a comprehensive plan for environmental sustainability is required [
2].
Although the Renewable Energy Law was passed in China in 2006 to promote the consumption and production of renewable energy, the Chinese economy has accounted for 44% of world oil demand growth since 2015. Excess capacity in oil refineries has made China among the world’s biggest net exporters of refined commodities. Another reason for China’s increase in demand for crude oil is that China’s oil demand is shifting its weight from industry to consumer-driven. On the other hand, the increase in domestic air transportation has boosted kerosene demand dramatically [
3]. However, China’s yearly crude oil imports have declined by 5.4% in 2021, for the first time since 2001, after Beijing enforced refinery industry regulations to prevent excess local fuel generation. While on the other hand, analysts also credit the decrease in crude oil imports and decreased energy reliance to effective engagement by domestic energy companies in domestic oil field exploration and utilization in recent years, which has improved domestic energy independence. In 2021, China boosted its total energy shift spending by 60% from 2020, substantially solidifying its global leadership position in investment in the energy transition. Even if China is slowing down growth in oil demand, the baseline figures are now huge enough that even a slower yearly percentage rate of growth can still result in a considerable yearly absolute rise in oil demand volume.
Thus, keeping in view, the struggle of the Chinese economy is making energy transitions yet remains the top CO
2 emitter in the world. At the same time, negotiation with increasing economic growth is also not easy. However, renewable energy consumption is continuously growing in China and will be an interesting factor in evaluating its long-term environmental sustainability influences. On the other hand, according to Eyuboglu and Uzar [
4], a negative shock to the economy has a detrimental impact on renewable energy generation. Regarding this, the study attempts to evaluate the asymmetric impact of renewable energy consumption in China in the STIRPAT-Kaya-EKC framework. The findings of this study will help academicians and policymakers understand how renewable energy consumption affects the environment asymmetrically. Examining the data individually for positive and negative shocks to renewable energy consumption will help the policymakers develop more precise tactics when deciding on energy policy in China. Nevertheless, figures for carbon dioxide emissions, renewable energy consumption, and economic growth are incorporated in
Figure 1,
Figure 2 and
Figure 3, which indicate the continuous increase in CO
2 emissions, economic growth, and renewable energy consumption in China. However, it has been seen that there is much increase in CO
2 secretions, economic growth, and renewable energy after the year 2000 in China. However, renewable energy is found to be more profound in its consumption in China after 2010. So, it will be noticeable to examine the long-run influences of economic growth, its desired level of growth, and renewable energy on CO
2 emission in China. It will also be an interesting context to measure these factors’ positive and negative shocks on carbon emissions. Moreover, the current study’s findings are significant to the environmentalist in making policies that would help reduce CO
2 emissions in China.
The rest of the paper is as follows:
Section 2 and
Section 3 include a literature review with the statement of the research gap and a theoretical and econometric model with the discussion of methodology, data, and sources.
Section 4 discusses and interprets results, and research is concluded in
Section 5 with policy recommendations.
This study significantly validates the STIRPAT-Kaya-EKC framework by analyzing the asymmetric relation between renewable energy consumption and CO2 emissions in China. The significant and negative impact of GDP squared on CO2 emissions confirms the inverted U shape of the EKC hypothesis in China. Furthermore, renewable energy’s positive shock helps to mitigate environmental degradation in China.
2. Literature Review
Economic growth and environmental degradation are being discussed widely across the research community. The increasing pollution, including emissions of reactive nitrogen, methane CO
2, and ozone precursors caused by economic expansion and population growth, drew researchers and policymakers’ attention toward green growth. However, high levels of growth and economic development bring prosperity and enable the economy to focus on environmental objectives. In the early 1970s, researchers identified GDP and population as key factors of environmental quality. The idea of Environmental Impact–Population–Affluence–Technology (hereinafter IPAT) was introduced by Ehrlich and Holdren [
5] in 1971. Later on, many studies used the concept of IPAT to explain environmental degradation [
6,
7,
8,
9,
10,
11,
12].
Focusing on GDP as a contributor to environmental degradation, the theory of Environment–Kuznets–Curve (hereinafter EKC) explains that contamination intensifies during the preliminary stages of economic expansion until it hits a tipping point where pollution decreases as income per capita rises [
13]. While examining CKC (carbon Kuznets curve) and its long-term relationship, Pao and Chen [
14] found that the ingesting of fossils plays its part expressively in the deterioration of the environment. However, the use of renewables improves the eminence of the environment by reducing carbon emissions. Since energy conservation policies may impede economic growth, a higher proportion of clean energy is required for long-term sustainability. Because numerous technological advancements in several economic sectors are necessary for the early stages of economic expansion, a high degree of pollution is unavoidable. For the period 1980–2012, Zoundi [
15] explored the link in accordance with CO
2 emissions and renewable energy consumption (hereinafter REC) in 25 African nations and found a negative association between REC and carbon emissions. Naz et al. [
16] inspected the association amongst GDP and CO
2 emissions in Pakistan and identified a positive correlation between GDP and environmental degradation, thus rejecting the inverted U-shaped EKC hypothesis while arguing that REC considerably reduces CO
2 releases. Nevertheless, the empirical findings of Hu et al. [
17] revealed the EKC hypothesis and indicate that growing the proportion of renewable energy consumption adds value to carbon reduction; that is, raising the amount of renewable energy consumption results in decarbonization. Working on the same line, Sarkodie et al. [
18], in their study, found that CO
2 emissions and environmental degradation are reduced when production and renewable energy and income levels rise at the same time, while they argue that in both carbon emanations and degradation functions, the EKC hypothesis is supported. Bölük and Mert [
19] further examined the EKC hypothesis in EU countries during the years 1990–2008 in terms of the relation between carbon emissions, GDP, and energy intake. They concluded that the European Union economies do not have an inverted U shape of EKC and also determined that energy derived from renewable sources reduces emissions of CO
2 by 50% compared to energy derived from traditional sources.
In attempts to find the solution to protect the environment, many researchers explored the influence of energy use and energy transition on environmental deprivation in different regions of the world. Energy generated through fossil fuels and investment activities and development positively influence contamination levels in the environment. By employing cointegration analysis, Hasnisah et al. [
20] exposed that renewable forms of energy negligibly influenced carbon secretions in thirteen Asian emerging nations. However, the study also explained that the rising ingestion of non-renewables and faster economic development offset the advantage of renewables. The study suggests that by better understanding the various variables impacting CO
2 emissions, the nations may build a strategic strategy to slow environmental deterioration. In a similar vein, Nathaniel and Iheonu [
21] explored the one-way causation between renewable and non-renewable energy forms and carbon secretions in Africa. Based on empirical estimations, they conclude that REC lowers carbon emissions while non-REC contributes to CO
2 emissions. Lin and Moubarak [
22] and Dong et al. [
23] investigated the REC–growth–CO
2 relationship in the case of China and found bidirectional causation running between REC and growth in the long run. However, no indication of a long-run or short-run causation involving emissions of CO
2 and REC is realized.
A clean form of energy recognized as renewable energy is familiar and predictable for environmental protection. It has mostly been seen that this clean form of energy negatively influences CO
2 releases and helps to ensure environmental cleanliness. Bekhet and Othman [
24] argue that renewables are the most momentous factors to consider when enlightening environmental eminence. According to Payne [
25], emissions of carbon dioxide had a favorable influence on the REC. Silva et al. [
26] inspect the liaison flanked by REC, GDP, and carbon secretions and describe that increasing renewable energy reduces per capita carbon emanations. Moreover, Charfeddine and Kahia [
27] evaluated the influence of REC on the CO
2 level of the MENA region and revealed a significant impact of REC on CO
2 reduction. In comparison, Nathaniel et al. [
28] found that REC does not contribute to environmental quality in MENA countries. Excluding South Africa, Khattak et al. [
29] observed the effectiveness of a clean form of energy use on the atmosphere in the BRICS economy, and their findings show that REC has negative and noteworthy long-term impacts on CO
2, implying that CO
2 emissions may be lowered by expanding renewable energy usage and forest area. Mohsin et al. [
30] also established a similar result in twenty-five emerging Asian nations. Belaïd and Zrelli [
31] and Sharif et al. [
32] demonstrate that expanding renewables is a realistic option for tackling energy independence while also lowering carbon emissions to safeguard future generations’ environment. Hanif [
33] and Acheampong et al. [
34] scrutinize the impression of REC on the environment in Sub-Saharan African economies and discover that renewable energy sources promote air quality by reducing carbon emissions and reducing households’ direct exposure to toxic gases; thus, the usage of renewable aids economies in meeting their long-term development goals. Many researchers have conducted a comparative analysis of how REC affects the environment in low-income vs. high-income countries. In this vein, Nguyen and Kakinaka [
35] illustrate that REC is positively related to carbon dioxide discharges in low-income economies, while the relationship is opposite for high-income nations. The empirical outcomes of Saidi and Omri [
36] do not support a positive association amid economic progress and renewable energy consumption and CO
2 emissions, demonstrating the validity of the neutrality hypothesis, which is explained by the uneven and inadequate utilization of renewable energy sources in the low-income countries. According to Gielen et al. [
37], renewable energy can provide two-thirds of the world’s energy demand while also contributing to the reduction in greenhouse gas emissions. However, the increasing transition toward REC will help in controlling global warming [
38]. Collender et al. [
39] show that the risk premium on sovereign borrowing costs is lower in nations with lower carbon emissions, and advanced economies that fail to manage their climate transition may face higher sovereign borrowing rates. Lin and Zhu [
40] consider CO
2 emissions as an indicator of environmental change, investigate the responsiveness of renewable energy technology innovation to the intensiveness of CO
2 releases in Chinese provinces, and conclude that the level of technical innovation varies significantly throughout China’s provinces, while at the same time, high CO
2 emissions have boosted the amount of renewable energy technical innovation, implying that the innovation process is actively responding to climate change in China. Although there is fear that high energy prices caused by the rise of renewable energy would harm the economy, findings suggest that renewable energy use leads the economy toward sustainability [
41]. On the other hand, Ali and Kirikkaleli [
42] and Adebayo et al. [
43] examine the asymmetric effect of renewable energy on CO
2 emissions in Italy and Sweden, respectively.
Although the past studies in the literature have investigated the impact of renewable energy on environmental degradation, the proponents of energy transition argue that renewable energy is a benign form of energy. In contrast, other researchers have shown an insignificant inspiration for renewables in improving the environment. There are also studies that support the EKC theory, while others have rejected the EKC hypothesis. The literature discusses the asymmetric effects of energy consumption on the environment. However, the literature lacks providing the asymmetric effects of the environment influencing factors in the STIRPAT-Kaya-EKC framework for China. In this uncertain and unclear situation, this study utilizes the STIRPAT-Kaya-EKC framework analysis of the asymmetric effect of EKC in China.
5. Conclusions and Policy Recommendations
This study employs the STIRPAT-Kaya-EKC framework and examines whether renewable energy affects environmental degradation asymmetrically in China or not. Following the empirical results, the main outcomes of the study are as follows:
The NARDL estimates of linear and quadratic terms of GDP support the EKC hypothesis in China in both the short-run and long-run, implying that the advantages of economic expansion in standings of CO2 secretions reduction will be realized over time.
According to the findings, renewable energy has an asymmetric impact on environmental quality. However, results indicate that the negative shocks to renewable energy use have a greater damaging impression on the environment than the positive shock to renewable energy consumption. The decrease in the use of REC leaves the population to rely on non-renewable energy sources that cause a tremendous increase in CO2 emissions.
It is also observed that the population contributes to environmental deprivation in the short run due to the resulting increase in demand for industrial products and transportation. However, its effect on environmental deterioration is insignificant in the long run.
Technology proxied by the number of patent applications is found to improve the environment by shrinking the carbon releases in the long run, because the high-tech industries use energy-efficient and renewable energy-based technologies.
Based on empirical findings, this study emphasizes that the government can improve the economy’s lifespan by allocating substantial funds for environmental preservation and establishing legislation to maintain a clean environment. With the increase in economic expansion, the government of China must subsidize the clean energy projects to encourage the industrialists to use clean energy resources. According to our result, technology is found to affect environmental quality positively. Therefore, this study suggests that the government should encourage research and innovations in energy-saving and low-carbon projects. Since the findings of this study show that negative shocks to renewable energy consumption harshly harm the environment, the government needs to maintain subsidies for the use of renewable energy to avoid negative shocks to REC and improve the infrastructure of renewable energy production. Examining positive and negative shocks to REC would aid policymakers in establishing more precise methods when deciding on China’s energy strategy.
Future studies in this domain can investigate the asymmetric impact of the sub-components of renewable energy, for example, wind, hydro, solar, etc., on the environment. Furthermore, the upcoming research may focus on the asymmetric effect of sub-components of renewable energy on other populated and polluted countries.