How renewable energy consumption lower global CO2 emissions? Evidence from countries with different income levels

Abstract Significant difference in the emission–renewables nexus across countries with different income levels is frequently ignored in previous studies. To empirically investigate whether the effect of renewable energy consumption on carbon dioxide (CO 2 ) emissions differs across countries with different income levels, the emission–growth–renewables nexus for a global panel of 120 countries and four income‐based subpanels over the period 1995–2015 is examined. Fully considering the potential cross‐sectional dependence and slope heterogeneity, a series of econometric techniques allowing for cross‐sectional dependence and slope heterogeneity is utilised. Cross‐sectional dependence and slope heterogeneity are confirmed for the global panel as well as for all four subpanels. Only for the global panel, high‐income subpanel and upper‐middle‐income subpanel is the environmental Kuznets curve (EKC) hypothesis valid. Renewable energy consumption has a negative effect on CO 2 emissions, but its effect is not significant; the mitigation effect may be obscured by higher economic growth and increasing non‐renewable energy consumption. The global panel and four subpanels provide mixed directionality of causality among the variables, suggesting that for various income‐based subpanels, significant differences exist in the effect of renewable energy consumption on CO 2 emissions, especially highlighting in various direct and indirect influencing paths between renewable energy consumption and CO 2 emissions.