Energy transition under fragmentation: A threshold analysis of inclusive governance in developing economies

Although institutional quality is widely recognised as important for environmental performance, less is known about whether the governance–energy relationship varies across levels of institutional capacity. This study examines the relationship between inclusive governance, energy intensity, and CO 2 emissions volatility across 71 developing economies in the context of an increasingly fragmented global energy system. We focus on whether the governance–energy relationship varies across levels of institutional capacity. Inclusive governance is measured using a composite index incorporating political institutional quality, gender representation, and income equality. The empirical analysis uses a piecewise panel specification based on the sample median of inclusive governance, with system-GMM and local-projection estimates providing supplementary sensitivity evidence. Inclusive governance is negatively and significantly associated with energy intensity in both governance regimes in the baseline specification, with a somewhat stronger association in the higher-governance regime. However, this nonlinear pattern is sensitive to alternative estimators and breakpoints and is therefore interpreted as suggestive rather than definitive. In contrast, inclusive governance is not significantly associated with CO 2 emissions volatility across most specifications. These findings indicate that the relationship between governance and environmental performance may be outcome-specific: institutional capacity is more clearly associated with energy efficiency than with emissions volatility. The results are interpreted as conditional associations rather than causal effects and suggest that the environmental relevance of governance may vary with both institutional capacity and the outcome being examined.