Do institutions mitigate climate risk in energy systems? Evidence from the energy trilemma

Climate change is increasingly recognized as a structural risk to energy systems, but empirical evidence on how climate physical risk reshapes the multidimensional performance of the energy trilemma remains limited. This study investigates the effects of climate physical risk on energy security, energy equity, and environmental sustainability within the energy trilemma framework, and examines whether governance quality conditions these effects. The study uses a panel of 122 economies from 2000 to 2022. It employs a fractional probit model, suitable for bounded trilemma indicators, to estimate the conditional effects of climate risk and institutional quality. The results reveal substantial heterogeneity across both dimensions and country groups. Climate physical risk exerts significant pressures on environmental sustainability and energy security, while its relationship with energy equity is more nuanced and context-dependent. Governance quality emerges as a decisive moderating force in the climate–energy nexus. In OECD economies, stronger institutions markedly attenuate the adverse effects of climate risk on sustainability and security, reflecting resilience-oriented adjustment, credible regulatory frameworks, and coordinated transition strategies. In contrast, in non-OECD economies, the moderating role of governance is weaker and less consistent, particularly for energy security, as structural constraints related to fiscal capacity, infrastructure provision, and policy credibility limit the effectiveness of institutional improvements in buffering climate-related shocks. These findings suggest that effective climate adaptation within the energy trilemma requires coordinated institutional reform alongside expanded investment capacity, particularly in structurally constrained economies where governance improvements alone may be insufficient.