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Asymmetric Effects of Environmental Taxes, Regulatory Quality, and Fossil Fuel Use on Renewable Energy Consumption: A Quantile Analysis of G-20 Countries

Author

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  • Pranay Purohit
  • Himani Chinmay Baxi

Abstract

The G-20 currently produces about three-quarters of global greenhouse gases while renewables meet only 14 % of its final-energy demand, raising doubts about whether conventional levers– carbon taxes, better governance and fossil-fuel phase-outs– work the same everywhere. Drawing on balanced annual data for 20 G-20 + EU economies from 2001 to 2020 (400 observations), this study deploys cross-sectionally augmented unit-root tests followed by Machado–Santos-Silva panel quantile regression to track how environmental-tax effort, World-Bank regulatory quality scores and the fossil share of electricity influence renewable-energy consumption across the entire distribution of adopters. The evidence is distinctly asymmetric. A one-percentage-point rise in green-tax revenue lifts the renewable share by only 2.1 percentage points at the 10th quantile but by 4.6 points at the 90th, revealing a fourfold gain for leaders. Fossil dependence exerts the opposite pull, its negative effect deepening from –0.08 to –0.36 points as countries climb the adoption ladder, signalling a robust lock-in constraint. Regulatory quality on its own shows diminishing returns, yet when interacted with taxation it turns significantly positive above the median, confirming that good institutions magnify, rather than replace, price signals. Model fit strengthens toward the upper tail (pseudo-R² rises from 0.18 to 0.41), underscoring the need for distribution-aware policy analysis. The findings imply that tiered or self-escalating carbon prices, coupled with transparent revenue recycling and targeted fossil-subsidy withdrawal, can accelerate renewable uptake far more effectively than flat rates or governance reforms alone, offering a nuanced roadmap for decarbonising the heterogeneous G-20 bloc.

Suggested Citation

  • Pranay Purohit & Himani Chinmay Baxi, 2025. "Asymmetric Effects of Environmental Taxes, Regulatory Quality, and Fossil Fuel Use on Renewable Energy Consumption: A Quantile Analysis of G-20 Countries," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 11(3), pages 576-591.
  • Handle: RePEc:aiy:jnljtr:v:11:y:2025:i:3:p:576-591
    DOI: https://doi.org/10.15826/jtr.2025.11.3.217
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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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