The impact of the digital economy and institutional quality in promoting low-carbon energy transition

Abstract

Given the threat of climate change, the renewable energy transition will play a pivotal role in reaching net-zero goals. The digital economy and institutional quality are considered key enablers of the rapid deployment of renewable energy because they can strengthen the reliability and security of energy systems. This study examines the impacts of the digital economy and institutional quality on renewable energy deployment across 85 countries from 2003 to 2021 using a Two-Step System GMM. The selection of a dynamic panel model is motivated by the path-dependent nature of renewable energy deployment. Sub-sample analyses are conducted to account for the diversity of the dataset in terms of energy mixes, levels of economic development, digital infrastructures, and institutional qualities. A dynamic threshold regression analysis is then conducted to determine the non-linearity of fossil fuel dependence on the impact of the digital economy and institutional quality on renewable energy deployment. The estimates reveal that the digital economy promotes renewable energy deployment, whereas institutional quality has an ambiguous effect. Additionally, depending on the degree of fossil fuel dependency, the impacts of both the digital economy and institutional quality vary significantly and exhibit non-linear and asymmetric features.