Energy productivity and environmental degradation in the Netherlands: evidence from the novel Fourier-based estimators

Abstract

Due to the incessant quest for economic growth, global energy demand has increased to a level that requires urgent rethinking. The Netherlands depends heavily on traditional energy sources, which are finite and equally emit a lot of greenhouse gasses, causing further environmental destruction. To sustain economic growth and protect the ecosystem, it is crucial for the Netherlands to consume energy efficiently. Given that policy directions are required, this paper investigates the effect of energy productivity on environmental degradation in the Netherlands between 1990Q1 and 2019Q4, using the Fourier ARDL (autoregressive distributed lag) and Fourier Toda-Yamamoto causality approaches. The Fourier ADL estimates indicate that all variables are cointegrated. Additionally, the long-run Fourier ARDL estimates indicate that investments in energy productivity could help reduce carbon dioxide emissions in the Netherlands. Furthermore, the Fourier Toda-Yamamoto causality outcomes suggest that energy productivity, economic growth, and renewable energy consumption have a unidirectional causal effect on CO₂ emissions. These revealing outcomes provide significant policy insights for the Netherlands' energy productivity objectives in their new energy policy proposed in 2022. The government could, through the new energy policy, increase investment in smart meters and review existing fossil fuel subsidies and energy trade taxes. Additionally, the government could consider reviewing the Netherlands' economic structure by increasing the share of the primary and tertiary sectors to the rising economic growth to reduce energy consumption.

Keywords: Energy productivity; Environmental degradation; Fourier ADF; Fourier ADL cointegration; Fourier ARDL; Fourier Toda–Yamamoto causality; Netherlands.