Low‐Carbon Energy and Sustainable Development: Democracy, the Rule of Law and Institutional Quality in Democratic and State‐Led Governance Systems of the <scp>USA</scp> and China

ABSTRACT This research investigates how economic growth, foreign direct investment, institutional quality, and democracy enhance the transition to low‐carbon energy in the USA and China, characterized by democratic and state‐led governance systems. Comparing these two countries fills a critical research gap by revealing the impact of governance differences on the low‐carbon energy transition, which has not been adequately addressed in the literature. The low‐carbon energy transition sources are classified as renewable energy, hydroelectricity, nuclear energy, and biofuel energy consumption. Some selected findings of the country‐based quantile‐on‐quantile regression model are as follows: (i) While economic growth shows positive effects at low consumption and negative effects at high consumption quantiles in China, it generally has a negative impact on the USA and presents a positive relationship only at low consumption quantiles. This suggests that China's growth‐oriented economic model is vulnerable to long‐term sustainability concerns, whereas the USA needs reforms to support the energy transition. Both countries should develop policies directing growth toward low‐carbon energy in line with SDG13. (ii) In China, while institutional quality generally negatively affects renewable energy, it shows a positive relationship at medium consumption quantiles. In the USA, while institutional quality supports low‐carbon energy consumption in low‐ and medium‐consumption scenarios, its effect weakens in high‐consumption scenarios. This result highlights the need for China to develop institutional reforms and transparent governance mechanisms, while the USA should improve its institutional efficiency by improving its energy infrastructure. These policies will improve SDGs 7, 9, 16.