Asymmetric effects of policy uncertainty on renewable energy consumption in G7 countries

Given the role that renewable energy consumption plays in transitioning to a low-carbon economy, it is critical for policymakers to understand its determinants. Although uncertainty has increased significantly since the early 2000s, little is known about its effect. To fill this gap, the paper provides novel evidence of the effect of policy-induced uncertainty on renewable energy consumption after controlling for income, institutions and innovation in G7 countries over the period 1997-2019. Using the nonlinear autoregressive distributed lag model, the paper reveals its asymmetric effects in the long run, implying that both a negative and a positive shock in lagged uncertainty reduce renewable energy consumption. The effect of uncertainty proved to be significant in the same direction, but not asymmetric in the short run. However, the effect of all other variables remained insignificant in the short run, which is not the case in the long run. Indeed, the results confirm that income and investment in research and development drive renewables, while it is hindered by more economic freedom in the long run. Therefore, consistent, clear and well-communicated energy and economic policies are called for, along with technological advances, as they can help minimize policy uncertainty and promote renewable energy use. (C) 2022 Elsevier Ltd. All rights reserved.