Interplay of Geopolitical Risk, Economic Growth, and Renewable Energy

Abstract

Despite widespread consensus on the need for renewables-based energy systems, the deployment of green infrastructure remains uneven and structurally bottlenecked. Most macroeconomic literature broadly aggregates the energy transition into a one-dimensional, static factor, thereby concealing the dichotomy between decarbonization aspirations and economic reality. This paper bridges this gap by quantifying the macroeconomic, structural, and geopolitical determinants affecting renewable energy transition using panel data from 42 countries over 2002-2022. Methodologically, this study disaggregated the dependent variable into a three-tier supply-chain (installed capacity, generation, and end-use consumption) and leveraged a Two-Way Fixed Effects model with Driscoll-Kraay standard errors to account for cross-sectional dependence and heteroskedasticity. Global market integration and rising geopolitical tension were identified as significant drivers that incentivized countries to diversify their energy supply with domestic green infrastructure. At the same time, urbanization and lagging greenhouse gas emissions were negative determinants of green energy generation, pushing economies toward continued utilization of fossil-fuel energy grids. Perhaps most importantly, while higher levels of domestic income were positively correlated with renewable capacity buildup, they had a negative correlation with end-use consumption, demonstrating that developing economies revert to traditional approaches to meet the excess demand. Baseline regulatory quality was also found to be statistically insignificant across all models, implying that environmental decrees are insufficient to impact the energy transition on their own.

Keywords: Geopolitics, Renewable Energy Transformation, Renewable Energy Consumption

https://doi.org/10.5281/zenodo.20315673