Rethinking diversification: Assessing the impact of energy concentration on climate change in rentier and non-rentier countries

Energy diversification, a critical strategy for environmental protection, has been surprisingly understudied in academic discourse. This paper seeks to address this gap by investigating the relationship between energy diversification and climate change in 76 countries from 1990 to 2020. We employ panel data techniques, and the system generalized method of moments (SYS-GMM) to analyze the impact of energy diversification, as measured by the Herfindahl-Hirschman Index, on CO₂ emissions. Additionally, control variables such as economic growth, trade openness, foreign direct investment, information and technology adoption, natural resource rents, and urbanization are included in the model. The analysis is re-estimated for various country groupings based on income level and resource dependence (rentier vs. non-rentier). The findings reveal a significant positive association between energy concentration and CO₂ emissions across all country groups, with the most pronounced impact is observed in middle-income, resource-rich economies (i.e., middle-income rentiers). The study also highlights differing effects of diversification on CO₂ emissions between high-income and middle-income nations, which reflects the prevalence of non-rentier economies among high-income countries and rentier economies in middle-income countries. The causal relationship between CO₂ emissions and energy diversification in different groups of countries is tested using the panel Granger causality test. The results reveal strong bidirectional causality between CO₂ emissions and energy diversification in all country groups analyzed, except for middle-income rentier countries. By elucidating the multifaceted relationship between energy diversification and climate change, this study aims to provide valuable policy recommendations to advance sustainable development and environmental management.