The Nexus Between Electric Energy and Renewable Energy on Carbon Emissions

Abstract

Developing markets like Indonesia still use natural gas, oil and coal as the main sources of electricity. These traditional energy sources will run out soon. Nowadays, Indonesia needs to pursue renewable energy while evaluating the environmental impact of carbon emissions from electricity generation and the use of oil, gas, and coal. This paper aims to investigate the relationship between the three main energy sources of electricity and renewable electricity to carbon emissions from Indonesia. Data series from 1990 to 2020, compiled by the International Energy Agency (IEA), are identified using the Partial Adjuster Model (PAM) with Robust Least Squares (RLS). Empirical results found that all major energy sources have a positive and significant effect on carbon emissions in both the short and long run. Specifically, electricity from coal has the most dominant impact, while gas contributes the least to carbon emissions. In both the short and long term, renewable electricity has been shown to reduce carbon emissions in Indonesia, albeit relatively modestly. In addition to the main findings, this paper implicitly reveals a strong structural dependence on coal-based electricity in Indonesia, which limits the effectiveness of efforts to reduce emissions despite the development and expansion of renewable energy. The findings indicate that the limited impact of renewable energy is due to limitations in institutional readiness, investment scale, and technological capacity. This paper also contributes to the literature by integrating disaggregated electricity sources (gas, oil, and coal) into the dynamic PAM-RLS framework, thereby offering a more nuanced and comprehensive perspective than conventional aggregate approaches. Notably, it provides policy implications by emphasising the urgency of accelerating renewable energy development to achieve environmental sustainability and inclusive economic growth. Other implications of the current study are discussed in the future.