Navigating energy policy uncertainty: Effects on fossil fuel and renewable energy consumption in G7 economies

Abstract

ABSTRACT In an era where energy transitions are critical for addressing climate change and ensuring economic stability, energy policy uncertainty (EGU) emerges as a crucial factor influencing energy consumption patterns. This study investigates the complex relationship between EGU and various forms of energy consumption, including fossil fuels, renewables, and total energy use across G7 countries from 1996 to 2022. Utilizing FMOLS (fully modified OLS) and DOLS (dynamic ordinary OLS) models, long-term relationships among variables were established and robustness was checked by employing ARDL (autoregressive distributed lag) model. Our findings reveal that EGU significantly hampers fossil fuel consumption, impedes renewable energy uptake, and affects total energy consumption adversely. These effects underscore the broader implications of policy uncertainty on energy strategies. Specifically, the robustness checks confirm that these relationships hold across different model specifications and periods. In addition, analysis reveals the dynamic impact of control variables including FDI inflow, institutional quality, banking development, and inflation rates on specific energy consumptions. Policy implications are profound: governments must prioritize the stabilization of energy policies to enhance investor confidence and facilitate the transition to sustainable energy sources. Additionally, targeted interventions to mitigate uncertainty can promote the development of renewable energy infrastructure and support more predictable energy markets. This study provides new insights into the impacts of policy uncertainty on energy consumption and offers a foundation for strategic policy formulation aimed at achieving a balanced and sustainable energy future.