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Financial innovation and clean energy technology development: Policy vs. geopolitics

Author

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  • Islam, Md. Monirul
  • Shahbaz, Muhammad
  • Sohag, Kazi

Abstract

We examine the role of financial innovation in advancing clean energy technologies, focusing on the interplay between stringent environmental policies and geopolitical tensions in major energy-financing countries from 2000 to 2021. To address spatial dependence, heterogeneity, and autocorrelation in the data, we apply the dynamic common correlated fixed effects methodology. Our results reveal that while venture capital investments initially hinder clean energy innovation, they become a significant driver when reinforced by stringent environmental policies. In contrast, the impact of geopolitical turmoil exerts mixed effects through both risk-enhancing and risk-averse channels. Notably, stringent environmental policies emerge as a key factor in controlling geopolitical risks to promote clean energy innovation, particularly when employing endogeneity addressing method, such as linear models with a multi-way fixed effects approach. Our findings offer an integrated policy framework for fully enacting environmental measures aimed at mitigating geopolitical risks and promoting sustainable technological advancement in the energy sector.

Suggested Citation

  • Islam, Md. Monirul & Shahbaz, Muhammad & Sohag, Kazi, 2025. "Financial innovation and clean energy technology development: Policy vs. geopolitics," Renewable Energy, Elsevier, vol. 246(C).
    • Handle: RePEc:eee:renene:v:246:y:2025:i:c:s0960148125006305
    DOI: 10.1016/j.renene.2025.122968
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