Investigating Impact of Environmental Tax Policy on Behavior of Investors in Renewable Energies Using a Dynamic Panel Data Approach

Expanding use of renewable energies (RE) around the world is a critical mission to achieve global environmental policies. The largest share of global energy mix relates to deployable and carbon-intensive fossil fuels, so it is necessary to create proper incentives for investors to invest in RE in order to move toward a low carbon economy. In this regard, one of the implemented policies is imposing tax on using deployable energies, which includes tax on both energy consumption and motor vehicle transportation. This paper investigates the impact of environmental tax policy on investors’ behavior in 13 leading selected developed and developing countries during 2004 to 2016. Based on economic theory, investment, particularly in capitalintensive energy industries, has a long gestation period. To capture this feature and evaluate the dynamic relations of investments in RE, a partial adjustment dynamic model is applied and estimated using generalized method of moments (GMM). The results show that imposing tax on fossil fuel energy consumption and transportation systems, in particular those which use fossil fuels, has a significant negative and positive impact on investing in RE, respectively. Moreover, empirical results demonstrate that there is a significant negative relation between the interest rate (IR) and investments in renewable energies (IRE).