Asymmetric Effects of Renewable and Non-Renewable Energy Consumption on Economic Development in Indonesia

Purpose - The aim of this study is to quantify the asymmetric effects of renewable and non-renewable energy consumption on Indonesia’s economic development. Design/Methodology/Approach - This study employs a Nonlinear Autoregressive Distributed Lag (NARDL) model to analyze Indonesia’s annual data spanning from 1965 to 2023. The NARDL approach was selected due to its capacity to handle variables with mixed orders of integration, making it well-suited to address the diverse integration properties of the variables under investigation. Findings - The results indicate that a 1% increase in non-renewable energy consumption raises per capita income by 0.717%, while a 1% decrease reduces it by 0.800%. Likewise, a 1% increase in renewable energy consumption enhances per capita income by 0.678%, whereas a 1% decrease reduces it by 0.576%. These findings highlight the asymmetric effects of energy consumption on economic growth, with greater sensitivity to reductions in non-renewable energy use. Research Implications - Three policy implications emerge. First, Indonesia must shift gradually to renewables to avoid sudden economic losses, despite climate commitments mandated by Law No. 16 of 2016 and the 2022 Enhanced Nationally Determined Contribution. Incentives like tax breaks and subsidized loans can mitigate disruptions and smooth the transition. Second, diversifying the industrial structure to reduce dependence on energy-intensive sectors is crucial, given manufacturing and mining’s significant income share. Third, expanding renewable energy infrastructure is crucial, requiring advanced grid systems and policy support to bolster energy security, curb emissions, and foster inclusive growth