Climate policies and legislation for renewable energy transition: The roles of financial sector and political institutions

Abstract

Given the urgent need to address global ecological degradation and its accelerating impacts, countries worldwide are increasingly prioritizing the acceleration of the transition to renewable energy sources. In this quest for green development, economies are motivated to enact enabling policies and supportive legislation to facilitate an expedited transition. Within this context, the present study seeks to investigate the roles of financial development and political institutions––particularly corruption control, civil society participation, and democracy––as conditional factors that support clean energy policies and climate change legislation (laws and regulations) in accelerating renewable energy transition in the top-10 polluting economies between 1996 and 2019. By applying the augmented mean group technique, the empirical findings indicate that clean energy policies and climate change laws and regulations alone are ineffective in driving the transition to renewable energy. However, financial development and certain political institutions––such as corruption control, civil society participation, and democracy––have been identified as key contributors to this transition. The effectiveness of clean energy policies in accelerating the renewable energy transition depends on a well-developed financial sector to implement and enforce these policies effectively. Enacting clean energy policies, along with environmental laws and regulations, while supported by a well-developed financial sector, accelerates the transition to renewable energy. Moreover, enacting such policies and laws, coupled with strong corruption control and higher active civil society participation, creates an environment that enables the transition to renewable energy.