Transition Trajectory: VAR Projections of Romania’s Shift to Renewable Energy

Abstract

Romania, along with many other nations, must take urgent action to significantly reduce greenhouse gas emissions to effectively address climate change. Through an examination of Romania’s renewable energy potential and strategies for transitioning to a more sustainable energy system, this study employs a Vector Autoregressive (VAR) model to explore the complex dynamic interrelationships between various energy sources within Romania including solar power, hydropower, coal, and natural gas. The results indicate that increased production of renewable resources, particularly solar and hydroelectric energy, serves to diminish reliance on fossil fuels by negatively impacting thermal energy output. Impulse response functions reveal that short-term shocks to thermal energy production lead to temporary decreases in solar and nuclear energy generation, followed by a gradual stabilisation, while variance decomposition analysis underscores solar energy's pivotal role in influencing other energy sources. The findings highlight Romania’s ability to replace polluting sources with environmentally friendly alternatives, implying that policies aimed at diversifying the energy mix, investing in green infrastructure development, and fostering innovation across industries are fundamental. Such strategies not only enhance Romania's energy sustainability over the long term but also contribute to broader economic growth and environmental protection objectives.