Effects of energy security and financial development on load capacity factor in the USA: a wavelet kernel-based regularized least squares approach

Abstract

In the pursuit of environmental sustainability, numerous countries, including the United States, are adjusting their policy frameworks to mitigate ecological degradation. This study explores the key drivers of load capacity factor (LF) from 1980 to 2021, with LF serving as a reliable proxy for ecological quality, as it reflects both the demand and supply sides of the environment. To better understand the dynamics across different time periods and to inform effective policy decisions, the research employs the Wavelet Kernel-Based Regularized Least Squares (WKRLS) approach. Unlike traditional kernel-based regularized least squares, WKRLS captures the marginal effects of independent variables on the dependent variable over various temporal scales, offering a more thorough view of these relationships. The results indicate that economic growth, trade openness, FDI inflows, and natural resource exploitation negatively affect ecological quality across short-, medium-, and long-term periods. In contrast, financial development and energy security have a positive impact. The outcomes from Wavelet Quantile Regression (WQR) corroborate the findings derived from WKRLS. Based on these results, policymakers should prioritize strengthening financial development and energy security, while addressing the adverse effects of trade openness, FDI inflows, and the exploitation of natural resources over various time horizons to foster improved ecological quality.