The Impact of Low-Carbon Fuel Consumption on Public Debt in Malaysia = (Kesan Penggunaan Bahan Bakar Rendah Karbon Terhadap Hutang Awam di Malaysia)

Abstract

Low-carbon fuel consumption is essential for reducing greenhouse gas emissions, combating climate change, and preserving the planet's natural resources for future generations. Any country that seeks to achieve this goal requires strong financial capability. However, due to financing constraints and the fiscal demands of other sectors, countries often have to rely on debt sources. Thus, using the two-gap model, this study investigated the impact of low-carbon fuel consumption on public debt in Malaysia from 1980 to 2021. The Autoregressive Distributed Lag (ARDL) approach was employed for both long-run and short-run analyses of two models. The first model included trade openness, investment, foreign direct investment, domestic savings, low-carbon fuel consumption, and exchange rate, while the second model incorporated exchange rate, foreign direct investment, investment, renewable energy, and trade openness. Findings from the first model indicated that low-carbon fuel consumption does not significantly affect public debt in the long run but has a significant positive impact in the short run. In the second model, it was found that renewable energy significantly increases public debt in the long run. In the short run, the exchange rate and foreign direct investment exhibit significant positive and negative effects on public debt, respectively. The results highlight the varying impacts of different types of energy consumption and economic variables on public debt over different time horizons. The policy implications point to the necessity to enhance low-carbon and renewable energy policies, balance fiscal and environmental policies, encourage energy efficiency and green technology investments, and investigate innovative financing options like public-private partnerships and green bonds. Additionally, cost-benefit analysis, long-term planning, constant observation, and international collaboration are essential to ensure sustainable energy transition can be achieved without exacerbating the public debt burden and compromising national fiscal stability.