Climate Risk, Environmental Trade Regulations, and the Energy Transition: Evidence from a Cross-Country Panel VAR Analysis

As climate change mitigation and carbon neutrality become global priorities, renewable energy expansion has become central to the energy transition. However, substantial cross–country heterogeneity persists. This study examines the dynamic interactions between climate risk and energy transition, incorporating Environmental Technical Barriers to Trade (TBT) as an international regulatory dimension. Using panel data for 118 countries over 2008–2023, we combine panel cointegration analysis with a Panel Vector Autoregression (P–VAR) framework and investigate heterogeneity across Energy Transition Index (ETI) groups and joint income–ETI categories. Three findings emerge. First, renewable energy generation is positively associated with temperature anomalies in the long run, while temperature shocks generate a positive response in renewable energy generation. Second, bidirectional Granger causality reveals dynamic interdependence between climate risk and energy transition, highlighting the relevance of international environmental trade regulations for sustainability. Third, renewable energy adjustment varies across ETI groups and joint income–ETI categories, underscoring the importance of national transition capacity. Overall, the findings suggest that energy transition dynamics are shaped not only by climate–related pressures but also by countries' capacities to expand renewable energy generation within an evolving international regulatory environment.