Monetary trade-offs: stability vs. renewables

• Monetary tightening reduces US renewable energy consumption by up to -0.50% via uncertainty channels. • Restrictive shocks stabilize volatility (-0.45 VIX index points) and inflation (-0.22%) but increase uncertainty (+1.11 EPU points). • Effects are state-dependent, amplified in high-volatility regimes and for capital-intensive renewables like solar/wind. • Financial development moderates impacts, highlighting central bank dilemmas in green transitions. • Robust VAR analysis with sign restrictions and disaggregation extends prior work on monetary-green trade-offs. This paper analyzes the spillovers of US monetary policy on renewable energy consumption (CRE) through financial stability channels, particularly through uncertainty amplification that reallocates resources from innovative green sectors. Using monthly data from January 1990 to June 2025, a VAR(4) model with Cholesky identification shows that federal funds rate hike shocks reduce CRE by up to -0.50% in the near term, simultaneously dampening volatility (-0.45 VIX index points) and inflation (-0.22%), but increasing uncertainty. Robustness checks, including sign restrictions, threshold VARs for nonlinearity, CRE disaggregation, and fiscal controls, confirm state-dependent effects moderated by financial development. Extending Cheng and Lin (2024), we highlight central bank dilemmas in green transitions, arguing for the need for targeted tools.