Environmental Science and Pollution Research (2024) 31:31304–31313

https://doi.org/10.1007/s11356-024-33324-8

RESEARCH ARTICLE

Decarbonizing energy: Evaluating fossil fuel displacement

by renewables in OECD countries
Selin Karlilar Pata1,2 · Mehmet Balcilar3

Received: 6 December 2023 / Accepted: 10 April 2024 / Published online: 17 April 2024
© The Author(s) 2024

Abstract
Energy transition to greener systems has been a focal point in climate policy agendas across countries as the negative envi-
ronmental impacts of fossil fuel technologies have become more evident Displacing fossil fuels with clean energy alternatives
in this regard is essential for meeting global climate objectives. In this context, the study analyzes the role of disaggregated
renewable energy sources on fossil fuel displacement in 36 Organisation for Economic Cooperation and Development
(OECD) countries in the period 2000–2020. The findings demonstrate a discernible trend in the displacement of fossil
fuels by various forms of renewable energy sources. It is found that to effectively displace 1% of fossil fuels, it is necessary
to achieve an average increase of 1.15% in renewable generation capacity. In addition, a one-to-one displacement of fossil
fuels occurs with hydropower, demonstrating its higher level of competitiveness and effectiveness in displacing fossil fuels.
Moreover, there is a partial displacement of fossil fuels by solar and wind power. These findings suggest that renewable
energy sources are progressively advancing towards effectively displacing fossil fuels.

Keywords Energy displacement · Renewable energy · Fossil fuels · Wind energy · Solar energy · Environmental sustainability

Introduction distribution of fossil fuels raises concerns regarding

energy security and efficiency, given their role in contem-
According to a report by the United Nations (United porary energy production systems (Martins et al. 2019).
Nations (UN) 2022), the energy sector is a significant con- As a result, the continuous increase in GhG emissions
tributor to climate change, accounting for approximately due to global energy generation underscores the critical
70% of global greenhouse gas (GhG) emissions. It is importance of implementing necessary actions for climate
widely acknowledged that the use of fossil fuels for energy change mitigation. In this context, all UN Member States
generation is one of the leading causes of GhG emissions adopted the 2030 Agenda for Sustainable Development in
and, consequently, climate change (Greiner et al. 2022). 2015, which comprises 17 Sustainable Development Goals
In addition to environmental considerations, the unequal (SDGs). Notably, SDG-7 (Affordable and Clean Energy)
and SDG-13 (Urgent Action to Combat Climate Change)
have attracted significant attention in response to climate
Responsible Editor: Roula Inglesi-Lotz change caused by pollutant emissions. Furthermore, the
2021 COP26 United Nations Climate Change Conference
* Selin Karlilar Pata
selin.karlilar@mku.edu.tr reached a consensus on environmental objectives, which
included achieving net-zero emissions by mid-century,
Mehmet Balcilar
mehmet@mbalcilar.net mobilizing financing to promote clean energy adoption,
and protecting natural resources (Arora and Mishra 2021).
1
Department of Economics, Hatay Mustafa Kemal University, In this regard, replacing fossil fuels with clean energy alter-
Hatay, Türkiye natives, particularly renewables, is essential for realizing
2
Clinic of Economics, Azerbaijan State University global climate objectives. Integrating renewable energy
of Economics (UNEC), Baku, Azerbaijan (RE) sources into the current energy system constitutes
3
Department of Economics and Business Analytics, one of the most vital components of such decarbonization
University of New Haven, 300 Boston Post Road, strategies (Soini et al. 2020).
West Haven, CT 06516, USA

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Environmental Science and Pollution Research (2024) 31:31304–31313 31305

Recently, substantial advancements in RE sources have

been observed, indicating that the process of transitioning
to renewables is well underway worldwide. On one hand,
there has been a significant shift in the competitive equi-
librium between renewables and fossil fuels from 2010 to
2021. The growth in RE generation capacities has resulted
in a considerable reduction in costs associated with gen-
erating energy using RE technologies (IRENA 2018). In
light of the current high prices of fossil fuels, the integra-
tion of RE in 2021 has saved global energy generation
costs by approximately USD 55 billion in 2022. Further-
more, 62% of the total new renewable power generation Fig. 1  Non-renewable energy generation in OECD countries (Twh).
capacity added globally in 2020 had lower energy costs Source: Our World in Data (2023)
than the cheapest source of fossil fuel-fired capacity. Since
Q4 2021, fossil fuel costs have risen at a faster pace than
RE costs, allowing renewables to sustain their competi-
tive advantage (IRENA 2022a). Consequently, RE sources
have become the primary low-cost option for power gen-
eration amid the present fossil fuel crisis.
On the other hand, renewables have achieved remark-
able progress in the power sector, with capacity additions
reaching new highs. Over the past decade, RE genera-
tion capacity increased by 130%, while that of fossil fuels
increased by only 24%. Moreover, global renewable genera-
tion capacity has expanded nearly fourfold from 754 to 3064
GW between 2000 and 2021 (IRENA 2022b). In 2021, RE
sources accounted for 81% of the total power generation
capacity. Specifically, hydropower remains the largest RE Fig. 2  Renewable energy generation in OECD countries (Twh).
Source: Our World in Data (2023)
source, comprising 40% of the overall installed capacity of
renewables in 2021. Solar photovoltaic (PV) installations
have experienced the most rapid growth among RE sources, 1990–2021. Indeed, there has been an observable drop in
demonstrating a 21-fold increase from 2010 to 2021. Wind their pace of increase during the past decade. Additionally,
power has also shown significant growth within the same the production of gas in these nations has experienced a fall
time frame as solar power, with installations increasing in recent years in comparison to coal and oil.
more than fourfold. Additionally, other forms of RE sources, Figure 2 illustrates the renewable energy generation in
such as geothermal and bioenergy, have witnessed a con- OECD countries. Hydropower is the RE source that OECD
siderable increase over the past decade, albeit on a small countries use extensively, as seen in Fig. 2. Moreover, the
scale (IRENA 2022a, 2022b). In summary, RE sources are utilization of variable renewable energy sources like wind
progressively displacing conventional energy sources on a and solar power has significantly increased over the last dec-
global scale. ade. However, there is still a pathway for further develop-
Despite the notable progress achieved by renewable ment and improvement for these energy sources.
energy sources globally, fossil fuels continue to hold a prom- A majority of OECD countries have recently imple-
inent position in the energy sector of OECD countries. These mented environmental policies aimed at significantly
nations contribute roughly 35% of global energy-related car- increasing the share of RE within their energy mix. For
bon emissions and produce twice the ­CO2 emissions per instance, Japan has augmented its utilization of renewables
capita (8.9 t) compared to the global average (4.3 t) (IEA and established a target of deriving 36–38% of its energy
2022a). Given these data, addressing environmental issues generation from renewable sources as part of its efforts to
and transitioning to renewable energies have emerged as pri- attain carbon neutrality by 2050. Moreover, as of 2016,
mary development strategies for OECD countries to maxi- Japan had become the second-largest solar energy pro-
mize the advantages of clean technologies. Figure 1 shows ducer among OECD countries (IEA 2020). In Australia,
the production of non-renewable energy in OECD countries. the proportion of renewables in total energy generation
Figure 1 shows that OECD countries have increased reached approximately 23.5% in 2021, as the country
their non-renewable energy production over the period strives to sustain this progress until 2030. In Denmark,
31306 Environmental Science and Pollution Research (2024) 31:31304–31313

the annual share of variable energy sources, such as solar model specification and methods” outlines the variables and
and wind power, exceeded 50% (REN21, 2022). Further- the empirical model employed in this study, followed by a
more, RE generation in OECD Europe surpassed that of presentation of the empirical results in “Empirical results
fossil fuel generation in both 2020 and 2019. This trend and discussion.” Finally, “Conclusion and policy implica-
was particularly evident in countries such as France, Ger- tions” concludes the study and delineates potential policy
many, Italy, and Spain, as they reaped the greatest benefits implications.
from the displacement of fossil fuels by renewables within
OECD-Europe economies. These developments illustrate
the rapid expansion of the RE sector across OECD-Europe, Related literature
particularly in the domains of wind and solar power (IEA
2020; IRENA 2022a). The environmental consequences of excessive pollutant
In summation, it is increasingly clear that the world is emissions resulting from fossil fuel use have led to the emer-
confronted with a significant threat posed by global warm- gence of renewable energy as a viable and sustainable alter-
ing. To alleviate its devastating consequences, a substantial native, characterized by its low carbon footprint (Li et al.
reduction in the reliance on fossil fuels is imperative. In this 2023). The transition towards clean energy sources promises
context, low-carbon and renewable energy technologies have considerable benefits by diminishing the adverse environ-
become a crucial component in global initiatives aimed at mental impacts associated with fossil fuel-based energy
decreasing reliance on fossil fuels and saving ­CO2 emis- production and consumption. In this context, a multitude of
sions. Numerous countries have placed great emphasis on studies have presented empirical evidence that substantiates
promoting the use of renewable energy sources as part of the emission-reducing impacts of RE sources as viable alter-
their environmental objectives, with the aim of achieving natives for fossil fuels (Deka et al. 2023; Kartal et al. 2023;
carbon neutrality. Given the imminent danger of global cli- Wang et al. 2023a), underscoring their significance in attain-
mate change, it is imperative that renewable energy sources ing decarbonization within the energy sector (Ulucak and
not only increase their power generation but also replace Yucel 2021). Consequently, to effectively tackle the climate
fossil fuels to prevent a climatic catastrophe. crisis, renewable energy sources must serve as a substitute
The first contribution of the present study is to address for fossil fuels rather than merely facilitate a sustained rise
the following pivotal question: To what degree are RE in energy use.
sources capable of displacing fossil fuels, given the consid- The first strand of the literature concentrates on the inter-
erable challenges they present to the decarbonization pro- play between RE sources and fossil fuels. For instance, Awer-
cess within the energy sector of OECD countries? Second, buch and Sauter (2006) emphasize that RE investments dis-
the study sample encompasses countries that accounted for place fossil fuels, particularly natural gas and oil, in the United
the majority of global RE investment during the analyzed States (U.S.) and Europe, thereby mitigating economic losses
period. Third, while existing energy literature has examined resulting from the oil-GDP effect. Marques and Fuinhas (2011)
the environmental impact of RE sources or fossil fuels, the explore the factors driving RE utilization in 24 selected Euro-
topic of energy displacement remains relatively unexplored, pean countries between 1990 and 2006; their research indi-
warranting further investigation. This study represents a cated that conventional energy sources hinder the deployment
novel contribution to the field as it explores the possibility of RE. Narbel (2013), utilizing panel data on electricity gener-
of disaggregated renewable energy sources displacing fos- ation in 107 countries, asserted that fossil fuel sources impede
sil fuels. It is crucial to determine the relative efficacy of the diffusion of renewable technology. Pfeiffer and Mulder
different renewable technologies in replacing fossil fuels. (2013) reveal that the abundance of fossil fuels and escalating
Fourth, the current study employs the Common Correlated energy consumption appear to negatively impact the quantity
Effects Mean Group (CCE-MG) method on panel data from of non-hydro RE generated, concluding that non-hydro RE and
36 OECD countries spanning from 2000 to 2020 to provide fossil fuels are predominantly perceived as substitutes rather
an empirical answer to the research question by assessing than complements to each other in numerous emerging econo-
the displacement effect of renewables on fossil fuels. Lastly, mies. Assessing a sample of 38 countries, Aguirre and Ibi-
having a clear understanding of which type of renewable kunle (2014) investigate the determinants of RE growth; their
energy is most effective in replacing fossil fuels is crucial empirical findings indicated a negative correlation between
for policymakers when it comes to refining environmental RE growth and the contribution of coal, oil, and natural gas
policies that can effectively combat climate change. Hence, to electricity production. Prehoda and Pearce (2017) empha-
this study offers robust evidence regarding the critical role size that replacing coal power plants with solar power in the
renewables play in achieving climate change goals. U.S. yields significant environmental benefits and a clear path
The structure of this paper is as follows: “Related lit- towards a more sustainable environment. Analogously, in the
erature” offers a summary of the relevant literature. “Data, context of Portugal, Figueiredo et al. (2019) report that the
Environmental Science and Pollution Research (2024) 31:31304–31313 31307

coal power plant phase-out without additional power capacity Data, model specification and methods
installation results in a fivefold increase in energy imports,
underscoring the critical role of renewable power capacity inte- The emphasis of this paper lies in examining the displace-
gration into the energy system. In this scenario, solar photovol- ment effect of RE sources on fossil fuels. To achieve this
taics could potentially replace coal power plants. In contrast, objective, a panel dataset encompassing 36 OECD coun-
Verdolini et al. (2018) identify a complementary relationship tries, with the exclusion of Iceland and Costa Rica due to
between fossil fuels and RE technologies in 26 OECD coun- data unavailability, is utilized for the period between 2000
tries. Employing a large sample of countries, Greiner et al. and 2020. Drawing on the displacement model proposed
(2022) discover that increasing RE production effectively cur- by York (2012), a displacement coefficient of renewables
tails nuclear energy production; however, renewables tend to at − 1 indicates a one-to-one basis displacement, whereby
replace fossil fuels only modestly. each unit of RE generated corresponds to one fewer unit of
The second strand of literature emphasizes the technological energy generated by fossil fuels. A displacement coefficient
advancements that hold promising potential for expanding RE ranging between − 1 and 0 represents partial displacement.
capacities. Cutting-edge technology plays a crucial role in the Conversely, a displacement coefficient of 0 denotes that the
integration of RE sources and enhances the overall capacity for increase in RE exerts no displacement effect on fossil fuels.
electricity generation (Wang and Dong 2022; Yu et al. 2023). The generation of electricity is one of the most crucial
Popp et al. (2011) find that knowledge stocks exerted a small yet aspects of decarbonizing the energy sector. The IEA (2017)
beneficial effect on RE capacity investments across 26 OECD estimates that decarbonization of the energy sector, spe-
countries. Verdolini and Galeotti (2011) demonstrate that aug- cifically through electricity generation, alone could reduce
mented demand for energy-related technologies and increased energy-related emissions by more than two-thirds under a
knowledge stocks are positively associated with elevated levels “two-degree scenario,” largely through the widespread adop-
of innovative activity. Hille and Oelker (2023) document that tion of renewable technology. However, if the amount of
innovation activity, which has contributed to substantial cost electricity generated is only considered, one cannot gain a
efficiency improvements and is crucial for the sustained suc- comprehensive understanding of the costs associated with
cess of RE, would not have advanced as rapidly and fostered capacity. By considering capacity, it is possible to accurately
the growth of solar and wind capacities without policy support. assess the investment decision by understanding the cost
They conclude that the influence of innovation on RE diffusion incurred to generate a specific quantity of electricity. There-
is predominantly policy-induced. Their study’s findings suggest fore, this study contributes to the existing body of literature
that technological differences, particularly innovation, appear by examining the correlation between renewable and fos-
to exert a more significant impact on the development of solar sil fuel generation technologies, with a focus on generation
capacities in comparison to wind capacities. capacity rather than solely relying on generation data.
Conversely, within innovation research, patents are In this regard, the dependent variable is the fossil fuel
regarded as a reliable and statistically robust proxy for tech- generation capacity ­(GenerationcapFF), and it encompasses
nological advancements and encompass an extensive body the combined capacity of coal, oil, and natural gas power
of technical knowledge (Johnstone et al. 2010; Zheng et al. plants. The main explanatory variable is the renewable
2021). RE sources are becoming more competitive in the electricity generation capacity ­GenerationcapRE). As in the
market as a result of technological advancements that are related paper by Verdolini et al. (2016), the fossil fuel capac-
advancing and disseminating energy-related patents (Wang ity and RE energy capacity are obtained by dividing the net
et al. 2023b). In this context, Wurlod and Noailly (2018) generation capacity by the total generation capacity in the
underscore that green patenting activities are inversely related country i and time t. Total capacity is used as a rescaling
to energy intensity in OECD countries. Alexiou (2023) con- variable to determine the share of energy sources. The data
tends that implementing patent systems could potentially for fossil fuels and renewables are obtained from the U.S.
stimulate research and development efforts in the domain of Energy Information Administration (EIA). The other explan-
RE, leading to considerable progress in advancing RE tech- atory variable is technological innovation (TI). This variable
nologies. As a result, beneficial spillover effects may arise is measured using the data on patent counts in clean energy
from the enhanced efficiency and cost-effectiveness of these technologies, which are (i) electrical machinery, apparatus
technologies, subsequently augmenting their competitive and energy; (ii) environmental technology; and (iii) engines,
edge relative to fossil fuel energy sources. Yang et al. (2022) pumps, and turbines. Patents possess the benefit of serving
observe that countries possessing greater green innovation as a reliable indicator of innovative endeavors and exhibit
capacity tend to exhibit higher efficacy in enacting renewable a strong correlation with numerous alternative metrics of
policies. Xin et al. (2023) conclude that technological inno- innovation. Technological innovation is a crucial element
vation in RE promotes low-carbon development in China. that directly contributes to the expansion of RE capacities.
31308 Environmental Science and Pollution Research (2024) 31:31304–31313

This is expected to accelerate the displacement of fossil Table 1  Descriptive statistics

fuels by renewables. The data for technological innovation Variables Obs Mean Std. dev Min Max
comes from the WIPO statistics database. Additionally,
gross domestic product (GDP) is included to capture overall Panel A. Whole sample (N = 36)
economic performance. This data is obtained from the World  ­GenerationcapFF 756 0.517 0.248 0.004 0.999
RE
Bank Database Indicator (WDI). Consequently, the general  ­Generationcap 756 0.318 0.225 0.001 0.959
structure of the main empirical model, which is discussed  ­GenerationcapRE (excl. 756 0.115 0.114 0 0.548
hydro)
above, is as follows:
 ­GenerationcapRE (excl. 756 0.089 0.101 0 0.469
GenerationcapFF = 𝛼0 + 𝛼1 GenerationcapRE hydro, waste, and bio-
it it
(1) mass)
+ 𝛼2 LTI it + 𝛼3 LGDPit + 𝜀it  ­GenerationcapHYDRO 756 0.203 0.226 0.003 0.950
BIOMASS
 ­Generationcap 756 0.027 0.031 0 0.142
where GenerationcapFF and GenerationcapRE stand for fossil
it it LTI 756 6.134 2.221 0.010 11.181
fuel generation capacity and renewable electricity generation
LGDP 756 10.202 0.719 8.284 11.63
capacity, respectively. TI it presents technological innovation
Panel B. Inclusive sample (N = 23)
and GDPit is the economic growth. 𝛼1 is the displacement
 ­GenerationcapFF 483 0.476 0.247 0.004 0.928
coefficient, and 𝜀it is the error term. L indicates that vari-
 ­GenerationcapVRE 483 0.103 0.111 0.001 0.467
ables are logarithmically converted.
 ­GenerationcapSOLAR 483 0.033 0.053 0 0.235
In the main empirical model, the various definitions of
 ­GenerationcapWIND 483 0.071 0.08 0 0.360
RE sources are employed separately for robustness checks.
LTI 483 6.790 2.026 2.197 11.181
However, specifically variable RE sources, such as solar and
LGDP 483 10.376 0.655 8.712 11.63
wind power, are considered in Eq. (2). Even though their
output varies depending on meteorological conditions, they
are the most promising technologies among RE sources. maximum value of fossil fuel generation is about the same as
More importantly, due to the rapid decline in their costs, renewables. The generation capacity of RE sources exhibits
they have become the primary option for new capacity addi- a greater degree of leftward skewness in comparison to that
tions on a global scale, challenging prevalent power systems of fossil fuels. Panel B of Table 1 shows that the mean value
like fossil fuel technologies. In this regard, the empirical of fossil fuel generation capacity is 0.476, while the elec-
model is rewritten as follows: tricity generation capacity of variable renewables exhibits a
GenerationcapFF VRE lower mean, with a value of 0.103
it = 𝛼0 + 𝛼1 Generationcapit
(2) For macro-level variables, cross-sectional dependence
+ 𝛼2 LTI it + 𝛼3 LGDPit + 𝜀it
(CD) can arise because of various factors, such as macro-
where GenerationcapVRE denotes the installed variable RE economic connections that manifest through (i) unobserv-
able time-varying shocks, (ii) participation in institutional
it
capacity. Other variables remain as defined earlier. The
assessment of Eq. (2) has been carried out utilizing data memberships, and (iii) the economic structure. As a result,
from 23 OECD1 countries, considering the availability of CD has the potential to impact the accuracy and reliability of
data for variable RE sources across the research period of the the analysis findings and neglecting this dependence could
study. Natural logarithms are used for all variables. lead to biased and inconsistent estimations. Table 2 presents
Table 1 displays descriptive statistics for the whole a summary of the findings from the Pesaran (2015) CD test
sample in panel A and for the inclusive sample in panel and indicates that both Eqs. (1) and (2) exhibit the pres-
B. According to panel A in Table 1, in terms of average ence of a CD issue in their respective variables. In addition,
values, the generation capacity of fossil fuels surpasses that the slope homogeneity (SH) test developed by Pesaran and
of renewable electricity generation capacity. Specifically, Yamagata (2008) is used in this study. The results, as dis-
the generation capacity of hydropower and biomass in total played in Table 3, all agree that there is slope heterogeneity
accounts for approximately two-thirds of the total generation present. Accordingly, to account for CD and heterogeneity,
capacity of renewables on average. The renewable electric- second-generation panel data methodologies are employed
ity generation capacity ranges from 0 up to 95%, and the in the study.
The subsequent stage involves the determination of the
stationary properties of the variables through the utiliza-
tion of the CADF panel unit root test developed by Pesaran
1
The inclusive sample includes Australia, Austria, Belgium, Canada, (2007). The findings from Table 2 indicate that all variables
Denmark, Finland, France, Germany, Greece, Italy, Japan, Luxem-
bourg, Mexico, Netherlands, Norway, Portugal, Korea, Spain, Swe- are non-stationary at the level, but they exhibit stationarity
den, Switzerland, Turkey, the UK, and the U.S. after being subjected to first differencing.
Environmental Science and Pollution Research (2024) 31:31304–31313 31309

Table 2  CD and unit root test results (2006). One notable advantage of this estimator, in com-
Tests Pesaran CD CADF parison to other panel estimators, is its ability to effectively
account for variables that exhibit cross-sectional depend-
Variables CD test I(0) I(1)
ency, heterogeneous characteristics, and the existence of unit
Panel A. Whole sample root (Chudik et al. 2011). The CCE-MG approach addresses
 ­GenerationcapFF 112.229*** − 1.376 − 3.812*** these concerns by improving the country-specific regression
 ­GenerationcapRE 106.864*** − 1.755 − 3.392*** equation in an effective way (Eberhardt 2012). The means
 ­GenerationcapRE (excl. hydro) 108.997*** − 1.145 − 2.504*** of the dependent and independent variables at the cross-
 ­GenerationcapRE (excl. hydro, 106.087*** − 1.224 − 2.367*** sectional level are incorporated into this equation. The CCE-
waste, and biomass) MG model is represented by the following equation:
 ­GenerationcapHYDRO 113.250*** − 1.604 − 4.266***
 ­GenerationcapBIOMASS 103.556*** − 1.708 − 3.698*** lnyit = 𝛼it + 𝛽i lnxit + 𝛾i lnyit + 𝛿i lnxit + ci ft + 𝜀it (3)
LTI 104.152*** − 1.845 − 4.776***
In Eq. (4), the variables yit and xit are used to represent the
LGDP 111.547*** − 1.679 − 2.684***
subject variables. The parameter coefficients 𝛽i are estimated
Panel B. Inclusive sample
values, while ft represents an unobserved common factor
 ­GenerationcapFF 70.538*** − 1.876 − 3.572***
that possesses heterogeneous characteristics and can be
 ­GenerationcapVRE 67.834*** − 1.182 − 2.065**
accounted for by a combination of yit and xit . The variables
 ­GenerationcapSOLAR 65.954*** − 0.579 − 2.809***
𝛼it and 𝜀it represent the group fixed effect and the error term,
 ­GenerationcapWIND 68.792*** − 1.774 − 3.005***
which encompass the unobservable factors, respectively.
LTI 67.277*** − 1.787 − 4.484***
The sequence of the empirical approach used in the study
LGDP 70.744*** − 1.497 − 2.134**
is shown in Fig. 3. After testing the statistical, stationarity,
*** shows 1% significance level CD, and homogeneity properties of the panel dataset, the
study uses the CCE-MG estimator for whole and inclusive
samples, respectively, in the fourth and fifth steps.
Table 3  SH test results
Whole sample Inclusive sample
Delta p-value Delta p-value
Empirical results and discussion
Δ 10.442 0.000 15.369 0.000 Table 4 summarizes the main findings of the CCE-MG esti-
ΔAdj 13.814 0.000 18.823 0.000 mator using the above-mentioned Eq. (1) variations. Model
1 provides a specification that includes the electricity gen-
eration capacity of all forms of renewables.
To account for the existence of CD and heterogeneously The findings from Model 1 reveal that there is a statisti-
sloping properties within the panel dataset, the present cally significant and good displacement of fossil-fuels by
study utilizes the CCE-MG approach developed by Pesaran renewables. More specifically, a 1% increase in renewable

Fig. 3  Empirical flowchart

31310 Environmental Science and Pollution Research (2024) 31:31304–31313

Table 4  CCEMG results for whole sample capable of burning fossil fuels (Verdolini et al. 2018). Hence,
Variables Dependent variable: G
­ enerationcap FF including biomass in the calculation of renewable electricity
generation may result in biased estimates. Accordingly, the
Model 1 Model 2 Model 3
findings of Model 3 reveal that the displacement coefficient
GenerationcapRE − 0.869*** - - (− 0.945) is statistically significant and different from − 1. It is
GenerationcapRE (excl. - − 0.932*** - indicated that a 1% increase in the electricity generation capacity
hydro) of non-hydro-biomass renewables leads to a decrease of 0.94%
GenerationcapRE (excl. - - − 0.945*** in the generation capacity of fossil fuels. This implies that non-
hydro, waste, and biomass) hydro-biomass renewables substantially displace fossil fuels. In
GenerationcapHYDRO - − 1.034*** − 1.050*** addition, biomass has an almost one-to-one displacement effect
GenerationcapBIOMASS - - − 0.974*** on fossil fuels, with a coefficient of − 0.974. Biomass possesses
LTI − 0.005** − 0.001** − 0.002** considerable potential as it can be utilized for direct combustion
LGDP − 0.001* − 0.008* − 0.013* to generate heat or electricity, and it can also be transformed into
Constant 0.799*** 0.851*** 0.817*** alternative forms of oil or gas. Because of this potential, biomass
***, **, and * denote 1%, 5%, and 10% levels of significance, respec- can effectively compete with fossil fuels and displace them.
tively Overall, the findings obtained from Models 1 to 3 show that
the displacement coefficients are very close to − 1 and the dis-
placement coefficients for the different definitions of renewa-
electricity generation capacity is associated with a 0.87% bles significantly differ from each other in Models 1 to 3. The
decrease in fossil fuel capacity. results indicate that RE sources are progressively becoming the
Model 2 uses the generation capacity of renewables, exclud- default option due to their cost-effectiveness, and they are mov-
ing hydropower. Given that hydropower is a mature technology ing in the direction of displacing fossil fuel sources on a one-
for which the majority of the natural endowment has already to-one basis. Over the past decade, there has been a significant
been utilized, it is not included in the calculation of renewable decline in the cost of RE, and this can be attributed to gradual
electricity. Moreover, as stated by Popp et al. (2011), hydro- advancements in technologies, the realization of economies of
power is a fast-responding dispatchable technology that is fre- scale, and the establishment of competitive supply chains. In
quently used to meet peak demand. It is therefore distinct from 2020, approximately 162 GW of new generation capacity from
the other forms of RE technologies in terms of its limitations renewables had costs lower than the least expensive form of
and characteristics. When excluding hydropower, the findings new fossil fuel-based capacity. This accounts for around 62%
indicate that there is a statistically significant and higher dis- of the net increase in renewable power generation globally
placement of fossil fuels than obtained in Model 1. In other (IRENA 2021). Accordingly, the growing competitiveness, and
words, a 1% increase in the generation capacity of non-hydro declining costs, coupled with the ongoing fossil fuel crisis, sug-
renewables is related to a 0.93% decrease in the generation gest that there is potential for renewables to completely replace
capacity of fossil fuel sourced electricity. On the other hand, fossil fuels soon, primarily driven by the expansion of their gen-
the displacement coefficient for hydropower is − 1.034, which eration capacities. It can also be said that renewables possess
indicates that a one-to-one displacement of fossil fuels by the capacity additions to compensate for electricity generation
hydropower has occurred. In other words, hydropower strongly derived from fossil fuels, thereby enabling the OECD countries,
displaces fossil fuels. This might be because hydropower is the dependent on fossil fuels, to significantly diminish their reli-
largest energy source among renewables by generation and ance on such resources. This, consequently, helps to ensure a
capacity (IEA 2022b). In addition, hydropower plants exhibit stable energy supply and meet the goals of cutting emissions.
superior capability for swiftly adjusting their electricity gen- Moreover, the capacity additions of renewables for electricity
eration levels in comparison to other alternative power plants generation have served to decarbonize the energy sector and
like natural gas, coal, and nuclear. The high level of flexibility limit the environmental damage caused by fossil fuels. It is also
possessed by them allows them to promptly adapt to changes observed that hydropower and biomass exhibit more efficacies
in demand and effectively counterbalance variations in supply in competing with fossil fuels and displace a larger proportion
originating from alternative electricity sources. This makes of fossil fuels. This might be because dispatchable and mature
hydropower a significant substitute for displacing fossil fuel- RE technologies, such as hydropower and biomass, have the
fired sources, thereby highlighting its importance. potential to provide electricity at a lower cost in comparison
Model 3 considers the generation of non-hydro and bio- to fossil fuels, especially in regions where untapped economic
mass renewables. Biomass can be stored and burned when it resources remain available.
is needed, making it a dispatchable fuel source. It is possible Table 5 summarizes the findings of the CCE-MG estimates
to co-fire biomass by combining it with natural gas and coal, using the above-mentioned Eq. (2) variations. In this context,
and biomass can be fed into a variety of burners that are also Model 1 encompasses a specification that includes generation
Environmental Science and Pollution Research (2024) 31:31304–31313 31311

Table 5  CCEMG results for inclusive sample must undergo a transition away from reliance on fossil fuels.
Dependent variable: G
­ enerationcap FF Recent global events have highlighted the significance of
connecting the expansion of RE capacity with endeavors to
Model 1 Model 2 Model 3
accelerate the energy transition. This connection is crucial
GenerationcapVRE − 0.524*** - - for enhancing the resilience, inclusivity, and climate resil-
GenerationcapSOLAR - − 0.489*** - ience of the energy system. In fact, RE sources that are cost-
GenerationcapWIND - - − 0.556*** competitive have a significant role in addressing the current
LTI − 0.003** − 0.002** − 0.011** energy and climate crises. They can expedite the transition
LGDP − 0.043* − 0.070* − 0.012* towards meeting the goals outlined in the Paris Agreement,
Constant 0.284* 0.497** 0.125* specifically the target of limiting global warming to 1.5 °C.
In this context, this study investigates the displacement
Results based on panel data for 23 nations for which data is available
effect of disaggregated RE sources on fossil fuels by employ-
***, **, and * denotes 1%, 5% and 10% levels of significance, respec-
ing panel data for 36 OECD countries spanning from 2000 to
tively
2020, with the objective of evaluating the current state of the
global energy transition. In this regard, the CCE-MG method
capacity for variable renewables, while Models 2 and 3 contain is implemented. The results show that RE has a significant
solar and wind power generation capacity. The findings from displacement impact on fossil fuels. Specifically, to effectively
Table 5 show that the capacity of variable renewables is nega- displace 1% of fossil fuel generation capacity, it is necessary
tively associated with fossil fuel capacity, indicating the partial to achieve an average increase of 1.15% in renewable elec-
displacement of fossil fuels by variable renewables. Moreover, tricity generation capacity in OECD countries. This obser-
solar capacity has a negative effect on fossil fuel capacity, with a vation remains consistent across a range of rigorous tests,
displacement coefficient of − 0.49. Regarding wind capacity, the which include varying interpretations of renewable genera-
displacement coefficient is negative and statistically significant tion capacity and the application of the CCE-MG estimation
(− 0.55), and it is slightly higher than solar capacity. The find- method. Excluding hydropower, biomass, and waste from the
ings show that wind power seems to displace more fossil fuels RE mix makes it much clearer that RE has a substantially
than solar power does. In addition, the generation capacity of greater influence on fossil fuel displacement. Under this sce-
variable renewables has a relatively smaller displacement effect nario, on average, a displacement of 1% of fossil fuel neces-
on fossil fuels than other types of renewables. Wind and solar sitates 1.07% of renewable electricity. More precisely, a one-
power are prominent renewable energy sources that are expected to-one displacement of fossil fuels occurs with hydropower
to exert a growing influence on the future energy composition and biomass. Further examination focusing on variable RE,
as a result of their declining costs. However, the cost reductions utilizing panel data from 23 OECD countries, reveals that
of these sources alone are insufficient to achieve the swift decar- an average increase of 1.9% of variable renewable electricity
bonization of the power industry. This may be attributed to the is required to displace 1% of fossil fuel generation capacity.
fact that the yields of variable renewable technologies exhibit Previous studies have predominantly examined the effects
daily and seasonal fluctuations, which may also be associated of renewables or fossil fuels on emissions. However, this
with variations in energy demand and the cost of buying elec- study takes a different approach by investigating to what
tricity from the grid. Overall, these results indicate that there is a extent renewables can replace fossil fuels. It also compares
significant pathway that still needs to be taken for OECD coun- the displacement impact of various forms of renewables
tries to attain one-to-one displacement of fossil fuels with vari- within a dynamic framework, which provides a more com-
able renewables. Hence, OECD countries should prioritize these prehensive analysis. In this regard, this study adds to the
sources in their energy agendas to maximize the advantages of existing body of literature by illustrating that the energy tran-
the sustainable structure of solar and wind power technologies. sition in OECD countries is well underway. It is also evident
that RE sources are progressively engaging in direct compe-
tition with fossil fuels, achieving the potential displacement
of the latter. The research underscores the potential of RE
Conclusion and policy implications sources, particularly hydropower and biomass, in supplant-
ing fossil fuels. The findings indicate that the capacity of
The burning of fossil fuels is the principal contributor to renewables to displace fossil fuels can be partially attributed
climate change; therefore, adjusting the energy composi- to their implementation in nations that have adopted meas-
tion is essential to attaining carbon neutrality and alleviating ures aiming to combat climate change. Indeed, the actualiza-
the adverse impacts of climate change. To address climate tion of this energy transition to RE sources depends on the
change, it is crucial to decrease the consumption of these continued dedication of countries to support the utilization
carbon-intensive fuels, and significant sectors of the economy of RE and related technologies.
31312 Environmental Science and Pollution Research (2024) 31:31304–31313

Given the current unavailability of cost-effective tech- Funding Open access funding provided by the Scientific and Techno-
nologies, the deployment of RE sources has emerged as a logical Research Council of Türkiye (TÜBİTAK).
crucial aspect of the contemporary energy system, as these Data Availability Data will be made available on request.
resources present the most competitive alternatives to fossil
fuels. Effectively transitioning to renewables not only neces- Open Access This article is licensed under a Creative Commons Attri-
sitates the advancement of RE technologies but also requires bution 4.0 International License, which permits use, sharing, adapta-
tion, distribution and reproduction in any medium or format, as long
coordinated economic and political efforts for the success- as you give appropriate credit to the original author(s) and the source,
ful execution of innovative energy production techniques provide a link to the Creative Commons licence, and indicate if changes
derived from renewables. While renewables have improved were made. The images or other third party material in this article are
cost competitiveness, notably wind and solar, government included in the article’s Creative Commons licence, unless indicated
otherwise in a credit line to the material. If material is not included in
policies should adapt to the evolving market dynamics. For the article’s Creative Commons licence and your intended use is not
example, market-based mechanisms, such as fuel taxes and permitted by statutory regulation or exceeds the permitted use, you will
incentives, can promote the adoption of alternative energy need to obtain permission directly from the copyright holder. To view a
sources while concurrently mitigating the rebound effect copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
linked with fossil fuel consumption. Carbon and fuel tax
implementation can generate revenue that can support the
subsidization of RE sources as a viable displacement for References
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