Scaling up renewables without phasing down fossil fuels? Rethinking the role of financial globalization

The growing literature on globalization and renewable energy deployment only emphasizes overall or economic globalization, overlooking the specific dimensions policymakers should prioritize to enhance renewable deployment. Moreover, these studies fail to address whether the increase in the renewable energy share is driven by scaling up renewables or phasing down fossil fuels. They also neglect the temporal dynamics, even though the effect may take years to materialize. This paper addresses these three critical gaps. First, it identifies financial globalization as the key driver of renewable electricity deployment, with a doubling of the financial globalization index increasing the renewable electricity share by 17 percentage points on average. Unlike trade, political, cultural, and interpersonal dimensions, the financial dimension of globalization significantly impacts renewable deployment. Second, it reveals that financial globalization leads to a scaling up of renewables without a corresponding significant phasing down of fossil fuels. Third, it demonstrates that the effect peaks after 7 years. Additionally, the analysis shows that this effect is influenced by factors such as the level of industrialization, tax and exchange rate policies, inequality, fuel import bills, climate legislation, financial constraints, and crises. International agreements, such as the Paris Agreement, have the potential to facilitate this process.