Climate Policy, Financial Development and Clean Energy Capacities in the <scp>EU</scp> : Policy Implications for the <scp>COP28</scp>

ABSTRACT Tripling the world's installed renewable power capacity by 2030 is one of the global pledges at the COP28 UN Climate Change Conference to keep the 1.5°C goal within reach. Green finance (GRF), financial development (FD) and energy taxes (ENTAX) are expected to play a crucial role in achieving this goal. However, little empirical evidence has been provided on this topic at the European Union (EU) level. Therefore, this paper fills this lacuna by estimating the combined effects of these three variables on Installed Clean Energy Capacity (ICEC) in 14 European countries during the 2007–2021 period. Due to non‐normal data distribution, the Method of Moment Quantile Regression (MMQR) has been employed. The findings assert that GRF and ENTAX are positively associated with ICEC, whereas FD hinders investment in ICEC. However, energy taxes are more effective than green finance in promoting ICEC. A deeper analysis shows that the positive impact of GRF is higher when countries have a higher level of ICEC. In comparison, the positive effect of ENTAX in stimulating ICEC is higher when countries have a lower level of ICEC. Additionally, FD exhibits a U‐shaped influence on ICEC. Based on these results, this research suggests that accelerating the energy transition in the EU requires expanding both green finance and energy taxes. Furthermore, a reform of the current structure of the financial system is needed.