Renewable Energy Transition and the Paris Agreement: How Governance Quality Makes a Difference?

Abstract

This paper investigates whether the Paris Agreement affects renewable energy deployment and how institutional quality moderates this relationship. According to a generalized method of moments estimation for panel data for both developed and developing countries over the period 2000–2022, the Paris Agreement positively influences renewable energy deployment, suggesting that countries are promoting renewable energy to align with institutional expectations to maintain their reputations. The results further show that governance quality is the main determinant of renewable energy deployment. However, the moderating role of governance underscores the less-pronounced impact of the Paris Agreement on countries with high governance indicators, suggesting that these countries may have shifted their focus toward other avenues of climate management beyond the deployment of renewable energy. Furthermore, there is strong evidence of the relationship between forest area, CO2 emission, trade openness, domestic credit, and renewable energy deployment. The results are robust with the use of a dynamic panel threshold model.