The Effect of Economic Freedom, Indicators of Financial Sector Development, Income and Education on Renewable Energy Use: An Empirical Analysis of Post-Transition EU Member States

Fossil fuels are among the most crucial factors underlying global environment impairment through CO2 emissions. In addition to this, the globalized world has witnessed significant price volatility, instability and disruptions in the supply of fossil fuels. Therefore, renewable energy transition (RET) has become a mandatory option for countries to tackle these environmental, economic, and energy insecurity problems in energy markets dominated by fossil fuels. But the RET process has remarkably slowed down in recent years due to increasing economic volatility, financial obstacles, geopolitical risks, and bottlenecks in the development of low-carbon technologies. In this regard, this study investigates the effect of market structure proxied by economic freedom and indicators of financial development, together with real GDP per capita and education, on the utilization of renewable energy in post-transition EU member states across the 2000-2021 duration by utilizing causality and cointegration tests. The outcomes of the causality analysis reveal a feedback relationship among renewable energy use, economic freedom, indicators of financial development, and real GDP per capita but a unilateral causality between education and renewable energy use. On the other hand, the outcomes of AMG estimation reveal a positive effect of economic freedom, real GDP per capita, and education on the utilization of renewable energy in some countries but a negative effect of financial institutions' development on renewable energy use and mixed results on the effect of financial markets' development regarding renewable energy use. Our results indicate that education is a significant instrument to make progress in renewable energy use via multiple channels, but governments should incentivize the financial system to support the RET process by favorable lending and sustainable finance instruments like green bonds or sustainability-linked loans.