From policy to practice: The mediating role of innovation in renewable energy adoption in OECD nations

Renewable energy must replace polluting energy to address environmental issues. Governments are creating measures to address such issues and accelerate renewable energy transition. Though many studies have examined the impact of environmental policies on renewable energy, the process by which environmental policy stringency influences renewable energy use is blurred. This study addresses the gap by investigating how renewable energy innovation mediates the relationship between environmental policy stringency and renewable energy consumption (i.e., renewable energy adoption) using panel data from 32 OECD nations from 2000 to 2019. The result of the system generalized method of moments (GMM) exposes the concealed mechanism, stating that stringent environmental policy, when connected with innovation in the clean energy sector, generates influential cooperation that fosters the adoption of clean energy sources. The Driscoll-Kraay standard error estimation used as a robust method confirms our baseline results derived from the system GMM method. Interestingly, the baseline results align with the sub-sample results across European and Non-European OECD economies. In line with these findings, we propose strict environmental policies and advancing innovation as complementary tactics to endorse renewable energy adoption in OECD economies.