The Dynamic Linkage between Private Credit, Renewable Energy, Economic Growth, and Carbon Emissions in Indonesia

This study aims to assess the interlinkage between economic growth, clean energy, and carbon dioxide emissions in Indonesia over the period 1980–2020 under the Environmental Kuznets Curve hypothesis, taking a unique perspective by focusing on the impact of private credit, along with controlling for the role of trade openness and total energy consumption. This study applies an Autoregressive Distributed Lag Bounds Testing model for the estimation method, followed by the Granger Causality test. The results demonstrate that total credit to private non-financial sectors significantly contributes to environmental depletion by rising carbon dioxide emissions. The Environmental Kuznets Curve hypothesis is not verified, indicating that economic growth cannot be used as a sole instrument for emissions reduction. Whilst total energy consumption is found to drive emissions, primary energy consumption from renewable resources is negatively associated with carbon dioxide. The Granger causality test signifies the feedback relationship between growth, credit, and carbon dioxide, as well as a unidirectional causality running from total energy consumption toward carbon dioxide. Following the findings, it is recommended that fostering clean energy transition and promoting green credit are among the pivotal policies to reduce carbon dioxide emissions.