FiT for purpose? Investigating the effects of feed-in-tariffs on renewable energy penetration in Europe

This paper investigates the dynamic effects of feed-in-tariff policies on renewable energy adoption, greenhouse gas emissions, and key macroeconomic variables across 29 European countries from 2011 to 2021. Employing an energy-augmented Cobb–Douglas production function and a Bayesian Global VAR framework, the study captures the intricate spillover effects and heterogeneity in responses. The results reveal that while feed-in-tariff policies significantly enhance renewable energy penetration in many countries, their macroeconomic impacts are mixed, with some nations experiencing reductions in GDP growth and increases in unemployment. Additionally, the findings highlight that simultaneous implementation of feed-in-tariff policies across countries may lead to resource competition and inefficiencies, underscoring the need for better coordination to optimise outcomes. This study provides crucial insights into the policy trade-offs inherent in the transition to a sustainable green economy, emphasizing the importance of tailored approaches to achieve carbon neutrality without compromising economic stability. • Energy shocks are analysed using a Bayesian GVAR and an augmented Cobb–Douglas model. • Feed-in-tariffs boost renewable energy but reduce GDP growth and raise unemployment. • Feed-in-tariffs decrease interest rates and aid carbon neutrality in some countries. • Simultaneous green policies may cause resource competition and inefficiencies. • Policy coordination is key for effective renewable energy transition in Europe.