The role of government spending on energy efficiency R&D budgets in the green transformation process: insight from the top-five countries

The transition to a low carbon economy has become more realistic with sustainable development goals (SDGs). Economies are on their way to 2030 and 2050 targets by increasing their environmental awareness. However, the most important issue that complicates this process is the dependence on fossil fuels and the need for sufficient time for renewable resources to mature. Previous literature has neglected this and focuses directly on renewable and fossil energy research and development (R&D) budgets. This paper fills the gap in the literature by showing whether the budgets allocated by countries for energy efficiency R&D are important in the maturation process of renewable energy sources. This paper offers policy recommendations to the countries (the USA, Canada, Germany, France, and Japan) that allocate the highest share of the budget to energy efficiency. It also presents the current situation of countries investing in energy efficiency as examples for other countries looking to transition into green energy. This study tackles the effects of energy efficiency R&D budgets, economic growth, trade openness, and natural resources on CO2 emissions over the period 1985–2019 using Augmented Means Group and Common Correlated Effects Mean Group methods. Empirical findings show that the energy efficiency R&D budgets are not at a level to enhance environmental quality. Moreover, economic growth and trade openness also contribute to environmental damage. On the contrary, natural resources increase environmental quality. In the light of the empirical findings, the considered countries with the largest budgets (top five) should expand their energy efficiency budgets until the transition to renewable energy gains momentum to achieve SDG-13, i.e., climate action, and SDG-7, i.e., affordable and clean energy.