The Impact of Environmental Governance on Energy Transitions: Evidence from a Global Perspective

The accelerating degradation of the global environment, primarily driven by dependence on fossil fuels, has intensified the urgency for energy transitions toward renewable sources. While the literature on energy transitions is expanding, the role of environmental governance, particularly the stringency of environmental policies, remains insufficiently understood. This study addresses this gap by empirically examining how environmental policy stringency influences national energy transitions. Using a balanced panel of 29 countries over the period 2010–2024, we construct an energy transition indicator and estimate its relationship with policy stringency while controlling for macroeconomic and structural factors such as income, trade openness, and foreign direct investment. To mitigate endogeneity and cross-sectional dependence, we employ robust econometric techniques, including Instrumental Variables (IV) two-step Generalized Method of Moments (GMM) and IV two-stage least squares estimators. The results provide strong evidence that stricter environmental policies significantly accelerate the shift toward cleaner energy sources. Furthermore, the findings highlight the complementary roles of financial innovation in mobilizing green investments and economic complexity in facilitating sustainable energy adoption. These insights underscore the critical importance of stringent environmental governance in achieving global decarbonization goals and inform policymakers on the design of effective regulatory frameworks to foster energy transitions.