How Does the Endogeneity of Energy Financing, Carbon Emissions, and Energy Transition Affect the Upper-Middle- Income Countries in ASEAN?

Abstract

This study examines the endogeneity between energy financing, carbon emissions, and energy transition in Indonesia, Malaysia, and Thailand as upper-middle-income countries in ASEAN. Using data from 2000 to 2023, it analyzes the interactions among these three variables through a Vector Autoregression (VAR) approach. The study plays an essential role in highlighting the complex relationships among these variables, which often impact both economic dynamics and environmental sustainability. The findings show that no causal relationships exist between the variables. However, there is a one-way effect, where carbon emissions and energy intensity significantly influence energy financing, and energy intensity also has a significant impact on carbon emissions. These findings suggest that, despite the absence of causal relationships, increases in energy intensity and carbon emissions may drive higher energy financing. The policy implications underscore the importance of government roles in upper-middle-income ASEAN countries to enhance incentives for renewable energy investment, promoting energy intensity to help curb carbon emissions. Additionally, governments need to allocate more energy financing toward clean energy projects that can reduce the accumulation of carbon emissions. Such policies are expected to foster a more sustainable energy transition and contribute to lowering carbon emissions in ASEAN’s upper-middle-income countries.