Global environmental degradation, driven by increasing carbon dioxide (CO₂) emissions and expanding ecological footprints, presents a critical planetary risk. This situation is frequently linked to heavy reliance on non-renewable energy and substantial economic activity. Focusing on Indonesia, a significant player in Southeast Asia, a recent investigation explores the nuanced relationships between non-renewable energy (coal, gas, and oil), renewable energy, economic growth, and capital formation, and their influence on CO₂ emissions and the ecological footprint over a span of nearly six decades. The collaborative work, led by Ghalieb Mutig Idroes and Irsan Hardi, with contributions from Md. Hasanur Rahman, Mohd Afjal, Teuku Rizky Noviandy, and Rinaldi Idroes from Universitas Syiah Kuala and affiliated institutions, offers crucial insights for Indonesia’s path toward environmental sustainability.

To unravel these complex interdependencies, the team meticulously analyzed yearly data from Indonesia spanning from 1965 to 2022. The methodology deployed robust econometric techniques, including Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Canonical Cointegrating Regression (CCR) for robust validation. These statistical models were chosen to effectively establish long-term associations among the variables while accounting for potential issues like serial correlation and endogeneity common in time series data. Further, pairwise Granger causality tests helped elucidate the directional influences between the studied factors, providing a more comprehensive understanding of their dynamic interactions.

Unpacking the Environmental Cost of Conventional Energy

The analysis confirms the environmental burden imposed by traditional energy sources. Findings show that increases in coal and gas consumption directly correlate with higher CO₂ emissions, with a 1% rise in coal leading to approximately a 0.07% increase in CO₂ emissions, and gas to a 0.18% increase. However, these did not significantly impact the ecological footprint. Conversely, an increase in oil usage was found to elevate the ecological footprint by about 0.16%, rather than CO₂ emissions directly. This differentiated impact of various fossil fuels on environmental indicators underscores the specific challenges associated with each non-renewable source.

In a positive development, the research consistently indicates that increased adoption of renewable energy significantly reduces both CO₂ emissions and the ecological footprint. A 1% rise in renewable energy was associated with an approximate 0.16% reduction in CO₂ emissions and a 0.02% decrease in the ecological footprint, thereby enhancing Indonesia’s environmental quality. Meanwhile, economic growth, as measured by GDP, was found to considerably increase both CO₂ emissions (approximately 1.17%) and the ecological footprint (around 0.87%). Interestingly, an increase in capital formation demonstrated a beneficial effect, reducing the ecological footprint by roughly 2.23%, suggesting that strategic investments can contribute positively to environmental outcomes.

Dynamic Interdependencies Point to Policy Pathways

Delving deeper into the dynamic relationships, Granger causality tests unveiled intricate interdependencies. A unidirectional causality was identified from CO₂ emissions to renewable energy, implying that changes in emission levels often precede shifts in renewable energy adoption. Crucially, a bidirectional causality was established between the ecological footprint and renewable energy, indicating a synergistic relationship where increases in renewable energy lead to reductions in the ecological footprint, and vice-versa. Moreover, a unidirectional causal link from gas to CO₂ emissions was observed, reinforcing the direct impact of this fossil fuel. This complex interplay of factors highlights the necessity of comprehensive, rather than isolated, policy interventions.

Charting a Sustainable Future for Indonesia

These robust findings offer clear directives for Indonesian policymakers. Prioritizing a reduction in reliance on non-renewable energy, particularly coal, oil, and gas, is paramount. Simultaneously, accelerating the transition to renewable energy sources through targeted incentives and supportive regulations is essential for achieving carbon neutrality and sustainable development. Integrating environmental considerations into all economic policies, including carbon pricing and environmental taxes, will help internalize environmental costs. Investing in sustainable capital formation practices, such as eco-friendly technologies and green infrastructure, can significantly mitigate environmental impact.

“Indonesia stands at a critical juncture where economic development must be harmonized with ecological preservation,” states Rinaldi Idroes, the corresponding author from Universitas Syiah Kuala. “Our analysis makes it clear that strategic investment in renewable energy and thoughtful capital formation are not just environmental imperatives, but fundamental pillars for a resilient, low-carbon future for the nation.”

While this investigation offers profound insights, it acknowledges inherent limitations, including the scope of econometric methodologies employed and the specific economic variables considered. Future research could broaden this understanding by incorporating alternative econometric techniques such as ARDL, VECM, or GMM. Furthermore, expanding the analysis to include additional socio-economic factors like trade openness, foreign direct investment, or government expenditure could provide an an even more comprehensive understanding of the forces shaping environmental outcomes in Indonesia and other developing economies, underscoring the continuing need for research in this vital area.

Corresponding Author: Rinaldi Idroes

Original Source: https://doi.org/10.1007/s44246-024-00117-0

Contributions: Ghalieb Mutig Idroes conducted the data analysis and wrote the article. Material preparation, data collection, and analysis were carried out by Irsan Hardi and Teuku Rizky Noviandy. Md Hasanur Rahman and Mohd Afjal contributed to the review and editing process. Rinaldi Idroes supervises the articles and submits the manuscripts. All authors have read and approved the final version of the manuscript.