In this new era, technology is improving fast and economic is growing rapidly due to the luxurious lifestyle of human nowadays. We can have as much energy as we want by producing efficiently and continuously. But the negative impact that these energy produce is more than positive impact because of resources that we need to use and waste product that were produce from the process of producing energy such as nuclear energy and coal energy.
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On the other hand, the rapid growth of industry from agricultural industry to manufacturing industry in the past decades has caused the production of energy to increase. However, the increase in these energy production consume a great amount of resource and will cause pollution to the environment and also people nowadays has already aware of the consequences of pollution that will bring to us in future. Therefore, production of green technology and energy has been increasing in these few years.
1.1 History of Green Technology
In the early days, before the industry revolution, people were using the main source, the sun, to generating the heat, they also used the other source to assist their daily life, such as horses as their transportation use, animals like cows and donkeys as their labors, and the wind will use to move the sails and generate the simple machine. However, since the first introduce of modern steam engine by Thomas Newcomen and James Watt in the mid 1700s, people found the possibility of make use of the power of steam. The single steam engines were soon became powering locomotives, factories and farm implements after the coal dug from the miles of England and Appalachia. In the 1800s, more and more natural resources were founded useful and able to bring us a zillion of convenience, such as the oil and petroleum which use in processed the gasoline for machine combustion after that. However, this ease has brought a lot of energy crisis all around the world today due to the huge consumption on the fossil fuels such as the oil, coal and the natural gas in the past decade.
Nowadays, green technology can refer to many different things, such as clean energy, renewable energy, sustainable energy, waste management and energy conservation. However, it is hard to find a history specify for green technology in the past. During the 1900s, there were a series of energy crisis in the Middle East and things getting worse in year 1973 when the embargo imposed by the oil producers of Iraq on America led the price of crude oil to rise from $3 per barrel to $12 in year 1974 and almost reach a average price of $45 in year 1980. This decision was in response to the America gave their support for the Israel in the Arab-Israeli War (Yom Kippur War). (Terry Macalister, 3 march 2011)
United Stated was awaking by this oil crisis and realized the importance of the energy resources, therefore beginning the initial push for developing the clean energy. In 1978, the National Energy Act became a landmark first step in beginning the research and development of renewable energy, but the push for renewable standards really began in the 1960s. (http://www.greenenergychoice.com/green-guide/renewable-events.html) After that, Madrigal also had a significant research in solar, wind and other alternative energies because there is a sudden change in the energy cost and realization of environmental crisis. These were the evidences to prove that since 1900s, green technology was undergoing a huge and rapid growth until today. In figure 1, the diagram shows the rapid growth of energy consumption from year 1986 to 2011.
Figure 1: World primary energy consumption grew by 2.5% in 2011, less than half the growth rate experienced in 2010 but close to the historical average. Rowth decelerated for all regions and for all fuels. Oil remains the world’s leading fuel, accounting for 33.0% of global energy consumption, but this figure is the lowest share on record. Coal’s market share of 30.3% was the highest since 1969.
1.2 Research Background
Energy is very important nowadays in either industrialized country and also consumed by household. Most of the energy is coming from oil and natural gas but unfortunately these resources are depleting when times goes on. Due to this problem, researchers are trying to develop alternative fuels, new means of generating energy and energy efficiency requirement. They have developed many sources of renewable energy which is chemical energy, electrical energy, radiant energy and nuclear energy. Although all these alternatives sources of energy is renewable, but it also pose other negative impact to the environment said Kofi (2002).
In some countries, clean energy is produced which is energy that does not produce waste products also known as green energy. According to Bakar, Sam, Tahir, Rajianiand Muslan (2011), green technology is an evolving of various kind of methodologies and materials enhancement. The usage of environmental friendly mechanisms has been increased to reduce the impact resulting from industrial sector wastage and fossil fuel consumption due to researches that has been done by scientists related to green technology pointing to climate changes and global warming due to greenhouse gases. With the threat of global warming and costly energy rising, businesses are starting to realize the benefits of using these technologies to reduce carbon footprint and waste while giving the business a positive results said Zainura (2010).
According to Eyraud, Wane, Zhang and Clements (2011), they have done research on renewable energy by analyzing the trends and determinants of investment on green technology for the last decades on advanced and emerging countries. They are using multi-country historical dataset and the results shows that green investment has become an important factor in energy sector which is growing rapidly mostly by China.
1.3 Development of Green Technology
There are various types of green technology such as wind power, solar energy, hydroelectric power which is derived from the water movement, biofuels which is derived from burning plants and animals substances., geothermal energy which is derived from the heat that given off by the earth, biomass which is produced by the organic materials such as plants and animals.
Figure 2: G20 Renewable Electricity Production
Source: NRDC, 2012; U.S. Energy Information Administration, 2012; Bloomberg New Energy Finance 2012
There is a research and data collection prepared by the NRDC, 2012; U.S. Energy Information Administration, 2012; Bloomberg New Energy Finance 2012 showing some important statistics in percentage of the renewable electricity production and investment of ranked the G20 country. The electricity are produced by various kind of renewable resources such as the wind, solar, geothermal, wave and tidal. (see figure 2)
Table 1: Electricity from Wind, Solar, Geothermal, Tidal and Wave in the G20 Countries
Source: Natural Resources Defense Council, Energy Information Administration, and Bloomberg New Energy Finance
As of 2011, the EU countries are really leading the pack, with Germany the most out of the G20 countries, getting nearly 11% of its energy from renewable sources. It’s followed by the EU as a whole with almost 7%, then Italy and Indonesia. Other countries like the U.S., China, Mexico, and Brazil lag behind. The US comes in at seventh place, where its measly 2.7% renewable energy puts it just a hair ahead of Mexico. Russia comes in last, with 0.0% of its energy coming from renewable sources. While all these countries have made important progress since 2002 they are still significantly behind other countries like New Zealand, Spain, Portugal, and Iceland (see table 1).
The NRDC also ranked the nations on how much their renewable energy production has grown since 2002. South Korea has had the most growth: it multiplied its then-puny production 200 times, putting it at a still-puny 0.9%. China comes in a distant second, having multiplied its renewable energy more than 80 times. The US is eleventh on that list, having quadrupled its production. Argentina, where production has decreased by 12%, is last. (see table 1)
Table 2: Top Countries for Clean Energy Investments in 2011
Source: Bloomberg New Energy Finance, 2012
These rising trends are showing up in the investment in clean energy in each of these G20 countries. Since 2002, the G20 countries have cumulatively invested over $860 billion in clean energy, according to data from Bloomberg New Energy Finance. The majority of this investment has occurred in the E.U. ($291 billion), followed by the U.S. ($215 billion), China ($197 billion), Brazil ($52 billion), and India ($40 billion). Saudi Arabia, which has spent a pathetic $20 million since 2004, comes in last place. This is because in Saudi Arabia the oil price is still low.
In the midst of worldwide renewable energy sector growth, some government policies encouraged renewable energy growth much more effectively than others, such as Germany’s feed-in tariffs. The United States has been pursuing renewable energy less aggressively than Germany has, and, in accordance with the saying “you reap what you sow,” Germany has far more effectively stimulated renewable energy growth. To fully understand the importance of weighing an aggressive growth policy versus a milder one, it’s important to understand the purpose of encouraging renewable energy usage.
Due to the fact that global warming is a time bomb that requires urgent action, a mild growth policy that leaves the United States generating only 2.7% of power from renewable sources is not adequate. Every year that coal power plants dominate, they make a significant contribution to our growing global warming problem. If global warming was not an issue, it could be pursued less aggressively. However, peak oil is a concern as well.
The report’s authors remind the 20 nations of the commitment they 20 made in 2002 to “substantially increase the global share of renewable energy sources.” They’ve made a difference: in the G20 countries as a whole, new clean energy investments have increased by almost 600 percent, far outpacing economic growth in those countries. But it’s not enough, the report’s authors warn. Without a striking turnaround, the G20 nations are on no track to meet their goal. The G20 nations as a whole currently use 2.6% renewable energy. Based on current trends, they will be using under 4 percent by 2015, and less than 6 percent by 2020. (Jake Schmidt & Aaron Haifly, Jan 2012)
1.4 Research Objective
1.4.1 General Objective:
The general objective of this study is to study the factor that enhances the global green technology in economic perspective. Other than that, the purpose of this study is to examine the cointegration and long run relationship among the variables by using Vector Error Correction Model (VECM) method. Then, we will found out which variables are significantly influenced others and how it does in order to discover a more effective way in doing an enhancement of green technology in global.
There are five variables that we used in our study, which are clean energy index (green technology index), fossil fuel price, CO2 permit’s price, technology index and the market stock price (S&P 500). Lastly, the specific objectives of this research are as follow.
1.4.2 Specific Objective:
Our specific objectives are as follows:
1. To examine whether clean energy index and fossil fuel price has any cointegrated and long run relationship by using VECM.
2. To examine whether clean energy index and CO2 permit’s price has any cointegrated and long run relationship by using VECM.
3. To examine whether clean energy index and technology index has any cointegrated and long run relationship by using VECM.
4. To examine whether clean energy index and S&P 500 has any cointegrated and long run relationship by using VECM.
1.5 Research Question
Do the clean energy index and fossil fuel price have a significant relationship between each other?
Do the clean energy index and CO2 permit’s price have a significant relationship between each other?
Do the clean energy index and technology index have a significant relationship between each other?
Do the clean energy index and S&P 500 have a significant relationship between each other?
1.6 Hypothesis of the study
In our research, we treated all the variables as our dependent variables. Thus in this case there is no need to specify which variables are endogenous variables and which are the exogenous variables by using this VECM method. So, we are going to make a hypotheses to figure out either there are cointegrated and long run relationship exist among these variables.
In fact, as we noticed that, the rapidly growing of the green technology globally in recent decades, hence, we are expected that the variables we had chosen will have long run relationship and cointegrated among each others.
1.7 Significant of the study
Back to the previous studies, past researcher have stated that the clean energy index, technology index, oil price, interest rate have long run relationship and cointegrated among each other. However, the study had figured out CO2 permit’s price had no long run relationship and no influenced by other variables (Surender Kumar, 2009). Therefore, in our study, we decided to investigate over the CO2 permit’s price with other variables again to figure out whether there is an existence of cointegrated and long run relationship among them.
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Due to the sharply rises of the pollution rate and the energy crisis problems, it has been ring a bell to not only the developed countries but globally including those countries which are still in developing stage. Based on the previously studies, most of the researchers were only focus the area of study on developed countries and some of them are world’s renewable energy leaders (Germany, Denmark, Spain), such as the OECD countries and G20 nations. On the other hand, contribution of other small countries also can’t be neglected. So, it is important to investigate other developing countries which are also undergoing a huge improvement in their clean energy growth such as Iceland, Lesotho, Albania, Paraguay, Bhutan and Mozambique. Therefore, we decided to do a globally research on our topic.
Besides that, the government and future researcher may use this study as their references. For example, government will get benefit by have some ideas with how to enhance their green technology due to the past research had stated that the country gross domestic production has a positive relationship directly with the green technology growth. Furthermore, future researcher can do a review on this study and they may do a more reliable with future theory.
1.8 Chapter Layout
In chapter one, which is the introductory chapter includes background and definition of green technology and how it benefits to the environment, problem statement, objectives, hypothesis and lastly theoretical framework. In the background and definition part, we discuss about the importance of clean energy also known as renewable energy and what is benefits it will bring to our environment.
After that, our research will continue to problem statement. In this part, we will discuss about the problem and issue of the research topic in detail. Then we will proceed to next part which is the objective. It is separated into two parts that is general objective which is the main objective of our research and specific objective which is specific idea of what we are going to test.
And lastly we will continue with theoretical framework that is the structure that supports the theory of a research study. In this part, we will include and describes the theory that we use and apply in this research.
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