Environmental Economics (Sep 2024)
Examining the effect of geopolitical risks on renewable energy consumption in OECD countries
Abstract
As urgent actions are required to accelerate the transition to a more environmentally friendly energy sector and global economy, the rising geopolitical risks defined as any tensions that disrupt the peace of local and international relations pose greater uncertainty to the rapid renewable energy deployment in supporting the carbon-neutrality ambitions. Thus, this paper investigates the influence of geopolitical risks on renewable energy consumption in OECD countries over the period 1970–2022 to address potential estimation biases from ignoring recent events such as COVID-19 and the ongoing Russia-Ukraine war. The paper applies a system GMM to a cross-country panel dataset while controlling for per capita income, carbon dioxide (CO2) emissions, economic globalization, and natural resource rents to deal with all possible sources of endogeneity. The results show that geopolitical risks reduce the consumption of renewable energy, with a magnitude of 0.22 percentage points. In addition, CO2 emissions and natural resource rents adversely affect the amount of renewable energy consumption. However, economic growth and globalization promote the demand for renewable energy. Therefore, the empirical findings suggest that geopolitical risks play a crucial role in the consumption of renewable energy. Acknowledgement The financial support from Engineering and Physical Sciences Research Council (EPSRC) under the project EP/T022930/1 is gratefully acknowledged. Authors would like to thank Prof. David Reiner and the Editor for their constructive comments and suggestions.
