R&D Expenditures in Fossil Fuels vs. Renewable Energy: Insights on Energy Transition through Cross-Country Analysis

This study examines the impact of public R&D expenditures in the fossil fuel and renewable energy sectors on energy transition through the carbon intensity variable. The analysis uses Pedroni's Panel Cointegration Test and the Group Mean Panel Dynamic Ordinary Least Squares, utilizing data from 16 IEA countries between 1993 and 2022. Unlike previous studies that primarily focus on either general R&D expenditures or aggregate energy sector R&D, this study provides a comparative analysis of fossil and renewable sectors, addressing a significant gap in the literature. The findings reveal that public R&D expenditures in the renewable energy sector may significantly reduce carbon intensity, whereas public R&D expenditures in the fossil fuel sector increase carbon intensity. These results suggest that, contrary to the common assumption in the literature, the heterogeneous effects of R&D spending across subsectors of energy industry should be taken into account. Therefore, Redirecting R&D expenditures toward renewable energy technologies, rather than fossil energy sector, may accelerate the energy transition process.