The Role of Economic and Public Finance Tools in Achieving Energy Transition in Europe

Europe’s decarbonization calls for an increase in the resources used to ensure a fairer transition. The objective of this study is to evaluate the role of public finance in the decarbonization process, considering the context of various uncertainties. Data from 1995 to 2023 for selected European countries were analyzed in this sense. We used the cross-sectional dependence–consistent Driscoll–Kraay estimator as the main econometric approach and Feasible Generalized Least Squares (FGLS) as a robustness test. The results revealed a positive impact of public debt, world uncertainty, and gross domestic product on renewable energy usage in European countries. Additionally, general fiscal pressure is shown to have a negative impact on the renewable energy used during the analyzed period. The results showcase the importance of public finance tools adjustments in supporting the race to zero breakthroughs and dawdling climate change. Several policy recommendations were made in this regard.