Policy, technology and market drivers of renewable energy utilization in OECD countries

The slowdown of renewable energy penetration despite rising policy intensity poses a puzzle for conventional energy economics. This study revisits the drivers of renewable energy utilization by integrating policy, technology, and market factors into a structural-institutional framework that emphasizes sectoral profit imbalances, capital reallocation constraints, and the green paradox mechanism. Using a panel dataset of 32 OECD countries over 45 years, we employ fixed-effects regressions, subgroup analysis by income level, and system GMM estimation to test four hypotheses. The results reveal three novel findings. First, policy interventions show the strongest marginal association with renewable energy adoption. However, their impact is highly heterogeneous: government regulation promotes renewables in high-income countries with strong institutions. However, it hinders them in low-income countries where it raises entry barriers and protects incumbents. Second, technological innovation exhibits a pattern consistent with the green paradox: an increase in R&D expenditure is associated with a short-run decline in renewable energy utilization, as fossil fuel owners accelerate extraction in anticipation of future cost reductions. At the same time, the long-run effect turns positive after three to five years. Third, the relationship between income growth and the share of renewable energy follows a U-shaped pattern: at low income levels, rising demand reduces the share of renewables as countries expand their use of fossil fuels; above a threshold, further growth shifts the energy mix toward renewables. These findings challenge linear, homogeneous models of energy transition and suggest that the effectiveness of policies and technologies depends critically on development stage and institutional quality. The study provides a differentiated policy framework: low-income countries should prioritize deregulation and the diffusion of technology. In contrast, high-income countries can rely on market-based instruments and sustained R&D investment, while accounting for the temporary side effects of the green paradox.