Greening the energy mix: the role of environmental policies in reducing fossil fuel consumption in EU-23 countries

This study examines the factors that influence fossil fuel consumption in European economies, with a specific emphasis on renewable energy, alternative technologies, foreign investment, and economic growth. The study explores the factors of fossil fuel consumption (FFC) in 23 EU countries over the period 2005–2022, by focusing on the roles of renewable energy output (REO), climate adaptation technologies (CTA), environmental taxation (TET), foreign direct investment (FDI), and economic growth (GDP per capita). We use annual panel data with dynamic panel estimators, such as the autoregressive distributed lag model, system generalized method of moments, and random effects models to incorporate both short-term and long-term dynamics. The Pedroni cointegration test demonstrates a long-run equilibrium relationship. The dynamic ARDL specification’s results show a strong persistence of fossil fuel use, as indicated by a significant lagged dependence of FFC, which underscores the entrenched reliance of European economies on carbon-intensive energy sources. Fossil fuel consumption is found to be significantly reduced by renewable energy output across all models, thereby supporting the substitution hypothesis that the deployment of renewable energy directly reduces reliance on fossil fuels. Foreign direct investment and GDP per capita growth, however, are positively correlated with FFC, in line with environmental Kuznets curve dynamics and the “pollution haven” effect. Climate adaptation technologies exhibit varying effects, decreasing reliance on fossil fuels in the short term but increasing it over the long term, illustrating transitional energy expenses and rebound phenomena. Overall, the results imply that technological innovation and renewable expansion are crucial in driving decarbonization, but structural economic growth and investment patterns still perpetuate dependence on fossil energy. Emphasizing policy implications highlights the necessity for enhanced integration of renewables, adapted energy efficiency measures, and environmentally friendly investment strategies to ensure long-term sustainability goals are met.