From public policy towards the green energy transition: Do economic freedom, economic globalization, environmental policy stringency, and material productivity matter?

Mehmet Aydin, Tunahan Degirmenci, Azad Erdem, Yasin Sogut and Nazli Demirtas

Energy, 2024, vol. 311, issue C

Abstract: The green energy transition is essential to addressing climate change and ensuring sustainable development, yet it faces numerous challenges related to securing financing, implementing effective public policies, and improving material efficiency. This study aims to elucidate the complex interaction of these factors by investigating the impact of economic freedom, economic globalization, environmental policy stringency, and material productivity on the green energy transition in OECD countries for the period 1995–2020. Despite widespread theoretical discussion, the effects of these factors, which act as drivers for each other, have been neglected. The study contributes to Sustainable Development Goals 7, 8, 9, and 12 by focusing on affordable and clean energy, decent work and economic growth, industry innovation, and responsible consumption and production. Using the Westerlund and Edgerton cointegration approach, the study finds a long-run relationship between these variables. The long-run estimators, RCCE and AMG, are used to assess the magnitude of this relationship. The results show that increased economic freedom positively affects the green energy transition in the Republic of Korea. In contrast, economic globalization is negatively impacting the transition in Spain, Italy, and Portugal. Stricter environmental policies are encouraging green energy adoption in Slovenia and Korea. Material productivity is supporting the green energy transition in both the OECD panel and in individual countries such as the Czech Republic, Spain, and Hungary. The study recommends policy measures to encourage green energy adoption, including establishing industrial standards for recycling, increasing material productivity, and strengthening renewable energy-based production processes. While environmental policies have proven effective in some countries, the overall framework across OECD countries is inadequate. Policymakers are called upon to critically review and improve current policies by balancing the implementation of disincentives that increase costs for polluting activities with subsidies that reduce the financial burden of the green energy transition. The study emphasizes the need for a balanced approach to regulation. Excessive regulation or excessively pro-market policies can hinder the green energy transition. It is therefore important for policymakers to find a middle ground that promotes environmental sustainability while promoting economic freedom.

Keywords: Energy transition; Economic globalization; Economic freedom; Environmental policy stringency (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:311:y:2024:i:c:s0360544224031803

DOI: 10.1016/j.energy.2024.133404

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