Impact of environmental taxes, hydroelectricity consumption, economic globalization, and gross domestic product (GDP) on the load capacity factor in the selected European Union (EU) member countries

doi:10.1016/j.regsus.2025.100210

Abstract

Abstract:

The intersection of economic development, energy dynamics, environmental policy, and environmental sustainability presents complex challenges for European Union (EU) countries. This study investigated the impact of environmental taxes, hydroelectricity consumption, economic globalization, and gross domestic product (GDP) on the load capacity factor (LCF) in the 10 EU member countries (including Austria, Finland, France, Germany, Italy, Poland, Portugal, Slovakia, Spain, and Sweden) using data from 1995 to 2020. To ensure the reliability and validity of the data, this study applied several advanced econometric tests, including the Pesaran and Yamagata slope heterogeneity test, Pesaran cross-sectional dependence (CSD) test, second-generation unit root test, and Westerlund cointegration test. The data showed important statistical issues such as slope heterogeneity across panels, CSD, mixed-order unit root structures, and long-run associations between variables. To address these issues, we applied an augmented mean group (AMG) model as the main regression approach, and used the pooled mean group-autoregressive distributed lag (PMG-ARDL) method to check the robustness. Specifically, the AMG results indicate that a 1.000% rise in hydroelectricity consumption results in a 0.048% rise in the LCF, while a 1.000% increase in environmental taxes leads to a 0.175% increase in the LCF. Contrary to this, a 1.000% increase in economic globalization results in a 0.370% decrease in the LCF, and a 1.000% increase in GDP leads to a 0.850% decrease in the LCF. Environmental taxes have a more beneficial impact on the environment, and GDP has the most detrimental effect. The findings provide empirical evidence on the role of environmental taxes, hydroelectricity consumption, economic globalization, and GDP in driving the LCF. Additionally, the findings provide valuable information to policy-makers, academicians, and stakeholders shaping energy and environmental policies in the 10 EU member countries.

Key words: Environmental taxes, Hydroelectricity consumption, Economic globalization, Load capacity factor, Sustainable development, European Union (EU) member countries

Funda KAYA, Badsha MIA, Most. Asikha AKTAR, Md. Shaddam HOSSAIN, Md Mahedi HASSAN, Muhammad Abdur RAHAMAN, Liton Chandra VOUMIK. Impact of environmental taxes, hydroelectricity consumption, economic globalization, and gross domestic product (GDP) on the load capacity factor in the selected European Union (EU) member countries[J]. Regional Sustainability, 2025, 6(2): 100210.

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Variable	Short form for variables after logarithmic transformation	Description and measurement	Source
Load capacity factor (LCF)	lnLCF	LCF is the ratio of biocapacity and ecological footprint. It reflects the ecological sustainability of a country by comparing its biocapacity to ecological footprint (LCF>1 indicates ecological reserve, and LCF<1 indicates ecological deficit).	Global Footprint Network (2023)
Hydroelectricity consumption	lnHYD	Hydroelectricity consumption measures the amount of electricity generated from hydropower sources.	British Petroleum (2022)
Environmental taxes	lnENV	Environmental taxes represent the share of environmentally related tax revenues in GDP, indicating the fiscal effort toward environmental protection.	OECD (2023)
Economic globalization	lnGLOB	Economic globalization captures the extent of economic integration through trade, investment, and financial flows, as measured by the KOF economic globalization index.	KOF Swiss Economic Institute (2022)
Gross domestic product (GDP)	lnGDP	GDP reflects the economic performance of a country in terms of income per capita.	World Bank (2023)

Statistic	lnLCF	lnHYD	lnENV	lnGLOB	lnGDP
Mean	-0.283	-0.724	0.385	1.886	4.424
Median	-0.340	-0.642	0.387	1.893	4.509
Maximum	0.373	-0.077	0.556	1.945	4.728
Minimum	-0.769	-1.758	0.201	1.746	3.750
Standard deviation	0.304	0.476	0.077	0.042	0.233

Test statistic	Probability value
Δ	8.623^***
Δ_adj	9.832^***

Variable	Pesaran CSD value
lnLCF	12.658^***
lnHYD	8.483^***
lnENV	4.489^***
lnGLOB	33.537^***
lnGDP	26.711^***

Variable	Test statistic
Variable	I(0)	I(1)
lnLCF	-2.297	-5.789^***
lnHYD	-4.403^***	-6.060^***
lnENV	-1.856	-4.824^***
lnGLOB	-2.656^***	-5.175^***
lnGDP	-1.267	-2.561^**