Navigating the Energy Transition: Unravelling the Relationships between Renewable Energy Consumption, Economic Policy Uncertainty, and Environmental Quality in G7 Economies
Abstract
This study examines the interrelationships between renewable energy consumption, economic policy uncertainty (EPU), and environmental quality in G7 economies over the period 1991–2020. Specifically, it explores whether economic policy uncertainty moderates the environmental benefits of renewable energy consumption, thereby addressing an important gap in the energy–environment nexus literature. Using second-generation panel econometric methods, including fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS), the analysis confirms the existence of a long-run cointegration relationship among renewable energy consumption, EPU, carbon dioxide (CO₂) emissions, and the ecological footprint (EF).
The novelty of this study lies in explicitly modeling the interaction between renewable energy consumption and economic policy uncertainty while simultaneously employing CO₂ emissions and the ecological footprint as complementary indicators of environmental quality. The results indicate that renewable energy consumption significantly reduces both CO₂ emissions and EF, whereas economic policy uncertainty independently exacerbates environmental degradation. Notably, the interaction term reveals that, when combined with renewable energy consumption, economic policy uncertainty amplifies its mitigating effect on environmental pressure.
Among the control variables, human capital is found to alleviate environmental degradation, while GDP per capita intensifies it. In contrast, foreign direct investment contributes to reductions in both CO₂ emissions and the ecological footprint. These findings highlight the dual role of economic policy uncertainty and provide robust empirical evidence to support the formulation of stable yet flexible energy and environmental policies. The results further underscore the importance of policy coherence, renewable energy expansion, and human capital development in achieving long-term environmental sustainability in advanced economies.
Keywords: G7 economies; renewable energy consumption; economic policy uncertainty; environmental quality; CO₂ emissions; ecological footprint; energy–environment nexus.
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