Energy market integration and renewable energy development: Evidence from the European Union countries

Abstract

Based on the panel data of 20 countries in EU during the period of 2007-2019, this paper study the effect of energy market integration (EMI) on renewable energy development (RED). We develop a general equilibrium model to explain how EMI affect the RED and the role of different mechanisms. The empirical results reports that the European EMI increased both the consumption and power generation of renewable energy, which proves a significant positive effect of EMI on the RED. In line with our expectations of theoretical model, our estimates show that the increase of renewable energy consumption is mainly due to the fossil energy cost increased, technology advancement and regional environmental regulation strengthening. And the fossil energy cost is the main driven force which plays a completely mediating role between EMI and RED. Furthermore, we also observe a negative effect of FDI and industry structure on RED.

Keywords: Energy market integration; Environmental regulation; Mediating effect; Prices adjustment; Renewable energy development.