Agricultural Economics and Development

Agricultural Economics and Development

Investigating the Impact of Renewable Energy Consumption and Environmental Pollution on Economic Growth of OPEC Member Countries

Document Type : Original Article

Authors
fatemeh sakhi 1
Ahmad Fatahi Ardakani 2
Yadollah Bostan 3
1 PhD Graduate in Agricultural Economics, Department of Agricultural Economics, Faculty of Agriculture and Natural Resources, University of Tehran, Karaj, Iran.
2 Professor, Department of Agricultural Economics, Faculty of Agriculture and Natural Resources, Ardakan University, Yazd, Iran.
3 PhD Student in Agricultural Economics, Department of Agricultural Economics, Sari Agricultural Sciences and Natural Resources University, Sari, Sari, Iran.
10.30490/aead.2025.367371.1653
Abstract
Introduction: Sustainable economic growth remains a paramount challenge for developing nations, particularly those heavily reliant on non-renewable energy resources. The complex interplay between economic development, environmental sustainability, and energy consumption is central to this challenge. This study aimed at investigating the impact of renewable energy consumption and environmental pollution on the economic growth of Organization of the Petroleum Exporting Countries (OPEC) member countries. The OPEC member countries, characterized by their abundant fossil fuel reserves and economies deeply intertwined with hydrocarbon revenues, face unique challenges in reconciling economic expansion with environmental stewardship. While these countries have emphasized responsible environmental oversight, a persistent tension exists between growth objectives and ecological imperatives. This research employed the framework of “green economy”, integrating four key pillars (economy, environment, energy, and health) to provide a holistic analysis. By focusing on the OPEC member countries from 1990 to 2020, this study elucidated the long-term relationships and policy implications of transitioning from a pollution-intensive growth model to a sustainable, low-carbon development path.
Materials and Methods: This empirical study utilized panel data from ten OPEC member countries (Iran, Algeria, Ecuador, Nigeria, Venezuela, Libya, United Arab Emirates, Iraq, Angola, and Indonesia) over the period 1990-2020. The required data were collected from the World Development Indicators (WDI) database.  The methodology involved the advanced panel econometric techniques. First, the panel unit root tests including Levin, Lin & Chu (LLC) and Im, Pesaran & Shin (IPS) were conducted to determine the stationarity properties of the variables. Second, the panel cointegration tests, including Kao’s residual-based test and the Johansen-Fisher panel cointegration test, were employed to examine the existence of a long-run equilibrium relationship among the non-stationary variables. Finally, to estimate the long-run coefficients robustly, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators were applied. These methods effectively address potential issues of serial correlation and endogeneity, providing efficient and consistent parameter estimates for the cointegrated panel data.
Results and Discussion: The panel unit root tests confirmed that all variables were integrated of order one, I(1). Subsequent cointegration tests (Kao and Johansen-Fisher) strongly rejected the null hypothesis of no cointegration, confirming a stable long-run relationship among the variables. The FMOLS and DOLS estimation results, which showed remarkable consistency in the direction of effects, revealed the following key findings: Renewable Energy Consumption (REC) had a positive and statistically significant relationship with per capita GDP. This indicated that increasing the share of renewables in the energy mix acted as a catalyst for economic growth in OPEC member countries, supporting the transition towards ‘green growth’. CO2 emissions (CO2) had a negative and significant impact on economic growth. This result underscores the tangible economic costs associated with environmental degradation in these nations, challenging the perception that carbon-intensive growth is cost-free and confirming the downward-sloping segment of an Environmental Kuznets Curve (EKC) relationship in this context. Population Density (POPDEN) had a significantly negative coefficient, suggesting that the strain on resources and infrastructure in the studied OPEC member countries would outweigh any potential positive agglomeration effects, thereby hindering per capita growth. Infant Mortality Rate (MORT) had a significantly negative relationship with the economic growth. This affirms that investments in health, leading to a healthier and more productive workforce, are crucial for a long-term economic development. Total Fertility Rate (FERT): The results of FERT were mixed. The FMOLS estimator showed a positive and significant effect, while the DOLS result was statistically insignificant. This suggests a potentially complex and context-dependent relationship where the positive impact of fertility on growth (through expanding the labor force potential) may be contingent on complementary investments in education and health. Totally, the study findings indicated that the traditional oil-dependent growth model in OPEC member countries would entail a significantly environmental and demographic costs. The path to sustainable economic growth lies not in increased population density or reliance on polluting activities, but in strategic investments in human capital (health) and natural capital (renewable energy).
Conclusion and Suggestions: This study confirmed significant long-run relationships between green economy components and economic growth in OPEC nations. The results highlight that the renewable energy consumption and the improved health outcomes (lower infant mortality) are positive drivers of growth, whereas CO2 emissions, high population density, and poor health indicators act as the impediments. The findings offer clear policy implications for achieving sustainable development in resource-rich economies as follows: diversifying the energy mix and promoting the renewables; that is, the OPEC member countries should accelerate the transition from fossil fuels by implementing supportive policies, incentives, and regulations to foster renewable energy industries. This would reduce internal dependency on hydrocarbons, cut carbon emissions, and create new engines for the green growth; internalizing environmental costs; that is, given the negative economic impact of CO2 emissions, policymakers should consider implementing carbon pricing mechanisms or emission caps for major industries, particularly oil and gas, to incentivize pollution reduction; investing in health and human capital; that is, prioritizing healthcare systems to reduce infant mortality is not only a social imperative but a sound economic investment that would enhance labor productivity and long-term growth potential; managing demographic pressures; that is, policies should address the challenges of high population density through the improved urban planning, infrastructure development, and creating productive employment opportunities beyond the hydrocarbon sector; finally, future research; that is, subsequent studies should directly test the EKC hypothesis for the OPEC member countries by including a squared CO2 emissions term and explore the role of institutional quality, governance, and technological innovation in facilitating the green transition. In conclusion, for the OPEC member countries, reconciling economic aspirations with planetary boundaries necessitates a fundamental shift towards a diversified, knowledge-based, and low-carbon economy centered on the pillars of environmental health, clean energy, and human well-being.
Keywords
Environmental Pollution
Economic Growth
OPEC Member Countries
Panel Econometric
Renewable Energy.
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