Carbon neutrality potential of the ASEAN-5 countries: Implications from asymmetric effects of income inequality on renewable energy consumption

Abstract

The Association of Southeast Asian Nations (ASEAN) member countries are lagging behind the United Nations' Sustainable Development Goals (SDGs) to increase the share of renewable energy use and to reduce income inequality. Therefore, this study scrutinises the asymmetric effect of income inequality on renewable energy consumption in order to assess the possibility of the major ASEAN-5 countries adopting the carbon neutrality goal. The study employs a nonlinear panel autoregressive distributed lag (ARDL) model, from 1990 to 2015. By using four income inequality proxies, the empirical results show, firstly, that an alleviation of income inequality promotes the consumption of renewable energy in the long run, and vice versa. Secondly, the asymmetric effect is found and confirms that the positive shock (worsening of inequality) of income inequality generates a larger impact on the consumption of renewable energy compared to the result from negative shock (improvement of inequality). Lastly, the Hatemi-J asymmetric Granger causality tests reveal bidirectional causality between the positive inequality shock and the consumption of renewable energy. Consequently, in terms of policy implication, there is a strong argument to reduce the degree of income inequality in ASEAN-5 in order to promote the consumption of renewable energy and to increase the feasibility of adoption of carbon neutrality targets in the region.

Keywords: ASEAN; Asymmetric effects; Carbon neutrality; Causality test; Income inequality; Panel ARDL; Renewable energy consumption.