Renewable Energy Transition, Institutional Quality, and CO2 Emissions: Evidence from Next-11 Emerging Economies

Abstract

This study examines whether renewable energy transition reduces carbon dioxide (CO₂) emissions in emerging economies and whether institutional quality moderates this relationship. Using a balanced panel of 11 Next-11 countries over 2000–2023, we estimate two-way fixed-effects models with clustered standard errors to address unobserved heterogeneity, cross-sectional dependence, and serial correlation. Renewable energy transition is measured by the share of renewables in total final energy consumption, while institutional quality is constructed as a composite index from the Worldwide Governance Indicators using principal component analysis. The results reveal a robust negative relationship between renewable energy transition and CO₂ emissions. A one-unit increase in renewable energy share is associated with a 3.6 log-point (approximately 97%) reduction in per capita emissions. Institutional quality also significantly reduces emissions, highlighting the importance of effective governance. The interaction term between renewable energy and institutional quality is positive but statistically insignificant (β₃ = +0.069, p = 0.47), suggesting that institutional quality does not significantly moderate renewable energy effectiveness. This finding does not support the expected synergy between institutions and renewable energy transition. Our results indicate that renewable energy expansion alone may be insufficient for deep decarbonization in emerging economies without supporting institutional frameworks. The study contributes to the energy–environment literature by providing updated empirical evidence on the complementary roles of renewable energy transition and institutional quality in fast-growing economies.