The role of renewable energy and technological innovations toward achieving Iceland's goal of carbon neutrality by 2040

Abstract

Iceland has set a target of becoming carbon neutral by the year 2040, and this study looks into the role that economic growth, renewable energy use, and technological innovation could play in getting them there. The Dynamic Ordinary Least Squares (DOLS) technique was used to analyze time series data from 1990 to 2021. According to the results of the DOLS estimation, a one-percentage-point increase in economic growth is associated with a 0.39% increase in CO₂ emissions. Furthermore, increasing the use of renewable energy by 1% is related to a reduction in CO₂ emissions of 1.46 percent over the long run, as indicated by the coefficient of renewable energy use being negative and statistically significant. The calculated long-run coefficient of technical innovation is negative and statistically significant, suggesting that a 1% increase in technological innovation results in a 0.02% reduction in CO₂ emissions. The empirical results show that as Iceland's economy grows, so do its CO₂ emissions, but that the country may get closer to its objective of carbon neutrality through the growing use of renewable energy and technological innovation. Alternative estimators, such as fully modified least squares (FMOLS) and canonical cointegrating regression, do not significantly affect the estimated results (CCR). Furthermore, the pairwise Granger causality test is employed to capture the causal relationship between the variables. In order for Iceland to reach its objective of carbon neutrality by 2040, this article offers policy ideas centered on a low-carbon economy, the promotion of the use of renewable energy sources, and the financing of technical progress.