How does environmental policy shape the impact of energy innovation funding on renewable energy generation? Evidence from econometric and machine learning approaches

Achieving sustainable development in the energy sector, particularly in renewable energy, requires substantial innovation funding, as it is essential for reaching net-zero emissions by 2050. This study explores how environmental policy influences the effect of energy innovation funding on renewable energy generation, addressing a key research gap in understanding policy impacts on energy transitions. Using both econometric and machine learning methods, the study analyzed data from 27 countries in the Organisation for Economic Co-operation and Development (OECD) between 2001 and 2020. The findings reveal that while energy innovation funding accelerated renewable energy generation, poor environmental policies weaken this relationship, suggesting that strong environmental policies are essential to complement energy innovation funding for promoting renewable energy generation. Additionally, the results indicate that market-based policies are more effective in enhancing the impact of energy funding on accelerating the renewable energy generation compared to non-market-based policies. These insights highlight the importance of aligning energy innovation funding with stringent market-oriented environmental policies to fully harness their potential and expedite the transition to renewable energy. Policymakers should prioritize the development of the strategies that integrate energy funding with effective policy frameworks, ensuring that the transition to renewable energy is not only swift but also sustainable.