Examining the impact of Australia’s ‘Direct Action’ policy on renewable energy, fossil fuel energy, and foreign direct investment (FDI), researchers have unveiled critical insights into the nation’s environmental landscape. With a focus on Australia’s pivotal role in the global energy industry, particularly in fossil fuel-based production, distribution, and marketing, the study utilized national data from 1996 to 2018.

Findings reveal a negative correlation between economic growth and FDI with environmental quality, leading to increased carbon emissions. Notably, positive shocks to Australian renewable energy sources demonstrated a remarkable ability to curtail carbon emissions by 23%, while negative shocks exacerbated emissions by 16%.

The study emphasizes the need for strategic energy transition policies to achieve Australia’s 2030 climate goals, cautioning against setbacks such as limited energy financing and reduced clean technology subsidies. This research provides valuable insights for policymakers and industry stakeholders navigating the complex intersection of economic growth, FDI, and environmental sustainability in Australia.

Here’s the breakdown:

Study Focus:

• Examination of the current state of Australian climate performance and its potential for achieving sustainable development.
• Three main focal points:
  • Investigating the role of renewable energy utilization in achieving a carbon-neutral country.
  • Examining the contribution of conventional energy use to the carbon emission trend.
  • Evaluating the impact of foreign direct investment (FDI) on Australia’s environmental sustainability.

Methodology:

• Investigation involves analyzing the effects of potential shocks from the ‘Direct Action’ in renewable and fossil fuel energy and FDI.
• Applied various approaches, including structural break tests, non-linear autoregressive distributed lag (NARDL) co integration, and long-run asymmetric analysis.
• Emphasis on short-run and long-run shocks (positive and negative) for comprehensive findings.

• NARDL empirical approach revealed:
  • Economic growth and FDI are carbon-intensive without mitigating effects on Australia’s carbon emissions, especially in positive shocks of economic growth and FDI.
  • Australian economic activities, including FDI, are conducted in an energy and carbon-intensive manner.
  • Abundant fossil fuels (coal and gas) contribute to excessive energy use and intense carbon emissions.
  • Positive shocks to renewable energy reduce carbon emissions by 23%, while negative shocks increase emissions by 16%.

Policy and Recommendations:

• Recommendations for achieving Australia’s 2030 emissions reduction goal:
  1. Energy transition to alternative sources (renewables).
  2. Partial privatization of the renewable energy sector to attract private investment.
  3. Introduction of technological innovation programs through research and development (R&D).
  4. Government subsidy policies to attract more players into the renewable energy sector.
• Addressing the worsening state of the environment due to positive FDI shocks:
  • Implement strict regulations on foreign investors to balance economic and environmental development.
  • Introduce environmental taxation to control excesses of industries and manufacturing firms, setting a carbon ceiling with taxes if exceeded.

Study Limitations and Future Considerations:

• Limitations related to the chosen variables.
• Suggested future research considerations include exploring other sensitive variables and environmental indicators, such as trade, globalization, institutions, and ecological footprint.

Conclusion:

• Study implications extend to other large economies, such as China and the USA, and developing states.
• European countries, India, and other economies can learn from the evidence presented, applying pressure on foreign investors for inclusive economic and environmental growth.

Title: Asymmetric inference of carbon neutrality and energy transition policy in Australia: The (de)merit of foreign direct investment

Authors: Edmund Ntom Udemba a, Andrew Adewale Alola b,c,d,*

a Department of International Trade and Finance, Faculty of Economics, Administrative and Social Sciences, Istanbul Gelisim University, Istanbul, Turkey
b Department of Economics, School of Accounting and Finance, University of Vaasa, 65101, Finland
c Vaasa Energy Business Innovation Centre, University of Vaasa, 65101, Vaasa, Finland
d Department of Economics, South Ural State University, Chelyabinsk, Russia

The full paper is under a Creative Commons License CC BY 4.0 and is available here.