The role of renewable energy in hedging against oil price risks: A study of OECD net oil importers

This study offers a novel perspective on the utilization of renewable energy as a means of hedging against international oil prices. Countries with limited reserves of traditional energy sources, such as crude oil, are susceptible to the risks associated with international energy prices due to geopolitical factors. This paper examines the interplay between energy consumption, economic growth, and international oil prices through panel analysis. The data employed in this study encompasses 25 net oil-importing countries from the Organization for Economic Co-operation and Development (OECD) between 1990 and 2019. Our long-run vector estimation results suggest that oil prices can pose an economic risk that diminishes gross output, while renewable energy consumption can mitigate the risk associated with oil prices. The Granger causality results among the variables support the feedback and conservation hypotheses for energy and renewable energy, respectively. Moreover, our findings indicate that oil prices may drive the expansion of renewable energy due to concerns about external risks. Policymakers should contemplate the utilization of renewable energy as a means of hedging against the risks associated with traditional resources. This study contributes to the extant literature on the energy-growth nexus by providing a fresh perspective.