IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v18y2025i8p2078-d1637100.html
   My bibliography  Save this article

Threshold Effects of Renewable Energy Investment on the Energy Efficiency–Fossil Fuel Consumption Nexus: Evidence from 71 Countries

Author

Listed:
  • Qing Chang

    (School of Energy and Mining Engineering, Xi’an University of Science and Technology, Xi’an 710600, China)

  • Xiangbo Fan

    (School of Energy and Mining Engineering, Xi’an University of Science and Technology, Xi’an 710600, China)

  • Shaohui Zou

    (School of Management, Xi’an University of Science and Technology, Xi’an 710600, China)

Abstract

As global focus on energy transition and carbon reduction grows, energy efficiency and renewable energy investment have become key policy tools. This study explores the nonlinear relationship between energy efficiency and fossil fuel consumption, emphasizing the threshold effect of renewable energy investment. Using panel data from 71 countries and a dynamic panel threshold model, the analysis reveals that at low renewable energy investment levels, energy efficiency improvements may be limited by the rebound effect, failing to significantly reduce fossil fuel consumption. However, once investment surpasses a critical threshold, energy efficiency begins to play a stronger role in reducing fossil fuel use. A heterogeneity analysis further shows that developed countries and those with carbon trading systems are more effective in leveraging energy efficiency for emission reduction. The findings highlight the need for synergistic policies combining renewable energy investment, carbon markets, and environmental regulations to accelerate the energy transition and achieve carbon neutrality.

Suggested Citation

  • Qing Chang & Xiangbo Fan & Shaohui Zou, 2025. "Threshold Effects of Renewable Energy Investment on the Energy Efficiency–Fossil Fuel Consumption Nexus: Evidence from 71 Countries," Energies, MDPI, vol. 18(8), pages 1-20, April.
    • Handle: RePEc:gam:jeners:v:18:y:2025:i:8:p:2078-:d:1637100
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/18/8/2078/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/18/8/2078/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hussain, Jamal & Zhou, Kui & Muhammad, Faqir & Khan, Danish & Khan, Anwar & Ali, Najabat & Akhtar, Rizwan, 2021. "Renewable energy investment and governance in countries along the belt & Road Initiative: Does trade openness matter?," Renewable Energy, Elsevier, vol. 180(C), pages 1278-1289.
    2. Huntington, Hillard G., 2024. "US gasoline response to vehicle fuel efficiency: A contribution to the direct rebound effect," Energy Economics, Elsevier, vol. 136(C).
    3. Yihan Yin & Song Li & Xiaoyi Xing & Xinyi Zhou & Yujie Kang & Qi Hu & Yanjing Li, 2024. "Cooling Benefits of Urban Tree Canopy: A Systematic Review," Sustainability, MDPI, vol. 16(12), pages 1-21, June.
    4. Yang, Zikun & Zhang, Mingming & Liu, Liyun & Zhou, Dequn, 2022. "Can renewable energy investment reduce carbon dioxide emissions? Evidence from scale and structure," Energy Economics, Elsevier, vol. 112(C).
    5. Anis Omri & Fateh Belaïd, 2021. "Does renewable energy modulate the negative effect of environmental issues on the socio-economic welfare?," Post-Print hal-03271499, HAL.
    6. Songping Yu & Tomoki Sekiguchi, 2024. "Platform-Dependent Entrepreneurship: A Systematic Review," Administrative Sciences, MDPI, vol. 14(12), pages 1-18, December.
    7. Myung Hwan Seo & Sueyoul Kim & Young-Joo Kim, 2019. "Estimation of dynamic panel threshold model using Stata," Stata Journal, StataCorp LLC, vol. 19(3), pages 685-697, September.
    8. Du, Kerui & Liu, Xueyue & Zhao, Cheng, 2023. "Environmental regulation mitigates energy rebound effect," Energy Economics, Elsevier, vol. 125(C).
    9. Maliyamu Abudureheman & Qingzhe Jiang & Xiucheng Dong & Cong Dong, 2022. "CO 2 Emissions in China: Does the Energy Rebound Matter?," Energies, MDPI, vol. 15(12), pages 1-25, June.
    10. Godswill Osuma & Lumengo Bonga-Bonga, 2025. "The Effects of Foreign Direct Investment and Technological Innovation on Renewable Energy Consumption Under Varying Market Conditions in the EU," Energies, MDPI, vol. 18(6), pages 1-15, March.
    11. Du, Minzhe & Huang, Chukun & Liao, Liping, 2025. "Trade liberalization and energy efficiency: Quasi-natural experiment evidence from the pilot free trade zones in China," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1739-1751.
    12. Lin Lin & Danhua Zhou & Jingying Wang & Yu Wang, 2024. "A Systematic Review of Big Data Driven Education Evaluation," SAGE Open, , vol. 14(2), pages 21582440241, April.
    13. Shuangyan Guo & Shan Yang & Canjiao Liu, 2024. "Mining Heritage Reuse Risks: A Systematic Review," Sustainability, MDPI, vol. 16(10), pages 1-16, May.
    14. Ehigiamusoe, Kizito Uyi & Dogan, Eyup, 2022. "The role of interaction effect between renewable energy consumption and real income in carbon emissions: Evidence from low-income countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    15. Hu, Xueyue & Wang, Chunying & Elshkaki, Ayman, 2024. "Material-energy Nexus: A systematic literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 192(C).
    16. Ivo Araújo & Leonel J. R. Nunes & António Curado, 2023. "Photovoltaic Production Management under Constrained Regulatory Requirements: A Step towards a Local Energy Community Creation," Energies, MDPI, vol. 16(22), pages 1-19, November.
    17. Patrick M. LeBlanc & David Banks & Linhui Fu & Mingyan Li & Zhengyu Tang & Qiuyi Wu, 2024. "Recommender Systems: A Review," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 119(545), pages 773-785, January.
    18. Sher, Farooq & Smječanin, Narcisa & Hrnjić, Harun & Bakunić, Emir & Sulejmanović, Jasmina, 2024. "Prospects of renewable energy potentials and development in Bosnia and Herzegovina – A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 189(PA).
    19. Fanying Kong & Hongyu Ren, 2025. "Advances in Green Energy, Environment and Carbon Neutralization," Energies, MDPI, vol. 18(5), pages 1-4, February.
    20. Ebaidalla, Ebaidalla M., 2024. "The impact of taxation, technological innovation and trade openness on renewable energy investment: Evidence from the top renewable energy producing countries," Energy, Elsevier, vol. 306(C).
    21. Shahbaz, Muhammad & Topcu, Betül Altay & Sarıgül, Sevgi Sümerli & Vo, Xuan Vinh, 2021. "The effect of financial development on renewable energy demand: The case of developing countries," Renewable Energy, Elsevier, vol. 178(C), pages 1370-1380.
    22. Egerer, Jonas & Farhang-Damghani, Nima & Grimm, Veronika & Runge, Philipp, 2024. "The industry transformation from fossil fuels to hydrogen will reorganize value chains: Big picture and case studies for Germany," Applied Energy, Elsevier, vol. 358(C).
    23. Ruggero Angelico & Ferruccio Giametta & Biagio Bianchi & Pasquale Catalano, 2025. "Green Hydrogen for Energy Transition: A Critical Perspective," Energies, MDPI, vol. 18(2), pages 1-47, January.
    24. Yang, Xiaolei & He, Lingyun & Xia, Yufei & Chen, Yufeng, 2019. "Effect of government subsidies on renewable energy investments: The threshold effect," Energy Policy, Elsevier, vol. 132(C), pages 156-166.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mateusz Ciski & Krzysztof Rząsa, 2025. "The Environmental Dimension of Sustainable Development in Relation to the Transition from Brown to Green Energy—A Case Study of Poland from 2005 to 2023," Energies, MDPI, vol. 18(11), pages 1-28, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huang, Haiping & Huang, Baolian & Sun, Aijun, 2023. "How do mineral resources influence eco-sustainability in China? Dynamic role of renewable energy and green finance," Resources Policy, Elsevier, vol. 85(PA).
    2. Awijen, Haithem & Belaïd, Fateh & Zaied, Younes Ben & Hussain, Nazim & Lahouel, Béchir Ben, 2022. "Renewable energy deployment in the MENA region: Does innovation matter?," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    3. Shao, Hanhua & Wang, Yaning & Lee, Chien-Chiang & Wen, Huwei, 2024. "How does political stability affect renewable energy finance? International evidence," Energy, Elsevier, vol. 313(C).
    4. Trinh, Hai Hong & Sharma, Gagan Deep & Tiwari, Aviral Kumar & Vo, Diem Thi Hong, 2022. "Examining the heterogeneity of financial development in the energy-environment nexus in the era of climate change: Novel evidence around the world," Energy Economics, Elsevier, vol. 116(C).
    5. Clement Olalekan Olaniyi & Mamdouh Abdulaziz Saleh Al‐Faryan & Eyitayo Oyewunmi Ogbaro, 2025. "Do institutional quality and its threshold matter in the sensitivity of the renewable energy transition to financial development? New empirical perspectives," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 5-43, January.
    6. Yu, Shiwei & Liu, Jie & Hu, Xing & Tian, Peng, 2022. "Does development of renewable energy reduce energy intensity? Evidence from 82 countries," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    7. Tii N. Nchofoung & Nathanael Ojong, 2023. "Natural resources, renewable energy, and governance: A path towards sustainable development," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(3), pages 1553-1569, June.
    8. Lee, Chien-Chiang & Yan, Jingyang & Xuan, Chengnan, 2025. "Blessing or curse? The effect of population aging on renewable energy," Energy, Elsevier, vol. 320(C).
    9. Huang, Hongyun & Mbanyele, William & Fan, Shuangshuang & Zhao, Xin, 2022. "Digital financial inclusion and energy-environment performance: What can learn from China," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 342-366.
    10. Hossain, Mohammad Razib & Singh, Sanjeet & Sharma, Gagan Deep & Apostu, Simona-Andreea & Bansal, Pooja, 2023. "Overcoming the shock of energy depletion for energy policy? Tracing the missing link between energy depletion, renewable energy development and decarbonization in the USA," Energy Policy, Elsevier, vol. 174(C).
    11. Lin, Boqiang & Xie, Yongjing, 2024. "How feed-in-tariff subsidies affect renewable energy investments in China? New evidence from firm-level data," Energy, Elsevier, vol. 294(C).
    12. Appiah-Otoo, Isaac & Chen, Xudong & Ampah, Jeffrey Dankwa, 2023. "Does financial structure affect renewable energy consumption? Evidence from G20 countries," Energy, Elsevier, vol. 272(C).
    13. Zeng, Qingrui & Hafeez, Muhammad & Sher, Falak & Ullah, Sana, 2024. "Environmental higher education, formal finance, energy security risk, and renewable energy investment in China: An aggregate and disaggregate analysis," Renewable Energy, Elsevier, vol. 232(C).
    14. Tiziana La Rocca & Maurizio La Rocca & Francesco Fasano & Alfio Cariola, 2023. "Does a country's environmental policy affect the value of small and medium sized enterprises liquidity in the energy sector?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 277-290, January.
    15. Halldén, Filip & Hultberg, Anna & Ahmed, Ali & Uddin, Gazi Salah & Yahya, Muhammad & Troster, Victor, 2025. "The role of institutional quality on public renewable energy investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 215(C).
    16. Mara Leticia Rojas & María María Ibáñez Martín & Carlos Dabús, 2023. "Is Debt Always Harmful for Economic Growth? Evidence from Developing Countries," Working Papers 292, Red Nacional de Investigadores en Economía (RedNIE).
    17. Marius Dalian Doran & Maria Magdalena Poenaru & Alexandra Lucia Zaharia & Sorana Vătavu & Oana Ramona Lobonț, 2022. "Fiscal Policy, Growth, Financial Development and Renewable Energy in Romania: An Autoregressive Distributed Lag Model with Evidence for Growth Hypothesis," Energies, MDPI, vol. 16(1), pages 1-18, December.
    18. Skare, Marinko & Gavurova, Beata & Sinkovic, Dean, 2023. "Regional aspects of financial development and renewable energy: A cross-sectional study in 214 countries," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1142-1157.
    19. Satar Bakhsh & Md Shabbir Alam & Wei Zhang, 2024. "Green finance and Sustainable Development Goals: is there a role for geopolitical uncertainty?," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-30, August.
    20. Tan, R.R. & Aviso, K.B. & Ng, D.K.S., 2019. "Optimization models for financing innovations in green energy technologies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 113(C), pages 1-1.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:18:y:2025:i:8:p:2078-:d:1637100. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.