How renewable energy investment, environmental regulations, and financial development derive renewable energy transition: Evidence from G7 countries

Abstract

Renewable energy transition is an imperative agenda of the Conference of the Parties. It has a tremendous role in limiting carbon emissions, and environmentalists have recently highlighted the critical need to identify the factors influencing the energy transition. By evaluating the evidence of the G7 from 2000 to 2020, this study broadens the scope of this argument by providing potential determinants of the energy transition. This study explores the dynamic influence of renewable energy investment, financial structure, and environmental regulation on renewable energy transition. The study applied the cross-section autoregressive distributed lag (CS-ARDL) model to resolve the issues of slope heterogeneity and cross-section dependency in panel data analysis. The results exhibit that green energy investment, financial development, and environmental policy stringency stimulate sustainable energy transition in the long run. Manifestly, the interaction term of financial development and ecological regulations offer comparatively stronger influence than their individual effects, implying that effective environmental regulations direct the movement of financial resources toward the renewable energy transition. Similar results are also affirmed through the augmented mean group estimator. It suggests that the policymakers would formulate integrated policies to strengthen the ecological regulations and financial sector development, reducing financial barriers and introducing new green financial products.