Threshold effects of renewable energy consumption by source in U.S. economy

With the climate challenges and the depletion of fossil resources, the renewable energy option seems to be a wise choice; this renews the debate on the relationship between renewable energy sources consumption and economic growth. This study relies on a threshold effects regression model to explore and evaluate the non-linear relationship between the series in the United States during the period 1984Q1–2021Q3. Using the threshold detection method proposed by Hansen and Seo (2002), the results of this method show that the renewable energy sources consumption/GDP relationship is non-linear. They also reveal, for all the different sources, an optimal renewable energy sources consumption/GDP threshold of 5.535; 2.715; 1.988 and 8.925% for BIO, GEO, Solar and HPower, respectively. The results indicate the presence of mixed directions of causality between the renewable energy sources consumption and GDP, using the Threshold Vector Error Correction model (TVECM). The findings of this paper suggest that if the United States aim to realize positive economic growth from their investment to renewable energy, they need to surpass a certain threshold of renewable energy sources consumption.