Assessing the impact of geopolitical risk, energy import dependence, and economic policy uncertainty on energy consumption

Geopolitical risks, energy security risks, and economic policy uncertainties play an important role in shaping energy consumption patterns, especially in times of economic and environmental challenges. However, their precise impacts are still insufficiently researched. To address this gap, this paper examines their effects on energy consumption in European Union countries from 1995 to 2022 while controlling for economic development, environmental degradation, industrialization, urbanization, and trade openness. The results, obtained using fixed effects feasible generalized least squares and two-stage least squares estimators, reveal that energy import dependence and economic policy uncertainty significantly and negatively affect final energy consumption across different model specifications and robustness analyses. This contrasts with the impact of geopolitical risk, which was positive but of lesser magnitude and only significant when tested jointly or controlling endogeneity. Additionally, the paper highlights two particularly intriguing and novel findings from the results, providing valuable implications for energy and environmental policy. First, the unexpected positive relationship between carbon dioxide emissions and energy consumption suggests that extreme weather events driven by climate change are already disrupting energy systems in Europe, resulting in higher energy consumption. Second, while geopolitical risk increases energy consumption, energy security risk and economic policy uncertainty have the opposite effect, likely due to heightened uncertainty, which discourages investment and slows technological progress.