Portfolio decisions of primary energy sources and economic complexity: The world's large energy user evidence

Abstract

Sustainable energy systems are sensitive to economic complexity, i.e., the combination of knowledge, innovation, and productivity, since it affects the countries’ portfolio decisions of primary energy sources, shaping geopolitics, and contributing to global energy security. This research assesses the impact of economic complexity on the performance of two energy systems measurements, e.g., diversification of primary energy demand (D.P.E.D) and non-carbon-based fuel portfolio (N.C.F.P), controlling for energy intensity, energy prices, resource supply diversity, and CO2 emissions in a panel of 25 large energy-using countries during 1998–2018. The findings support the long-run and causal relationships across energy systems using the panel cointegration methods and dynamic panel models. Specifically, economic complexity’s statistically significant and positive effect on D.P.E.D and N.C. F.P is detected. Moreover, the contribution of N.C.F.P to total energy demand is more elastic than D.P.E.D when the shares of economic complexity and the control variables increase. Results also indicate that the cyclical movements of economic complexity are not related to energy systems fluctuations across large energy-consuming economies. Consequently, the role of economic complexity in sustainable energy systems is a necessary condition to overcome the barriers in achieving (i) resource abundance and equitability and (ii) a non-carbon-based fuel portfolio for large energy consumers.