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

Abstract

This study examines the factors that influence fossil fuel con-sumption in European economies, with a specific emphasis onrenewable energy, alternative technologies, foreign investment,and economic growth. The study explores the factors of fossilfuel consumption (FFC) in 23 EU countries over the period2005–2022, by focusing on the roles of renewable energy out-put (REO), climate adaptation technologies (CTA), environmen-tal taxation (TET), foreign direct investment (FDI), and economicgrowth (GDP per capita). We use annual panel data withdynamic panel estimators, such as the autoregressive distrib-uted lag model, system generalized method of moments, andrandom effects models to incorporate both short-term andlong-term dynamics. The Pedroni cointegration test demon-strates a long-run equilibrium relationship. The dynamic ARDLspecification’s results show a strong persistence of fossil fueluse, as indicated by a significant lagged dependence of FFC,which underscores the entrenched reliance of European econ-omies on carbon-intensive energy sources. Fossil fuel consump-tion is found to be significantly reduced by renewable energyoutput across all models, thereby supporting the substitutionhypothesis that the deployment of renewable energy directlyreduces reliance on fossil fuels. Foreign direct investment andGDP per capita growth, however, are positively correlated withFFC, in line with environmental Kuznets curve dynamics andthe “pollution haven” effect. Climate adaptation technologiesexhibit varying effects, decreasing reliance on fossil fuels in theshort term but increasing it over the long term, illustratingtransitional energy expenses and rebound phenomena. Overall,the results imply that technological innovation and renewableexpansion are crucial in driving decarbonization, but structuraleconomic growth and investment patterns still perpetuatedependence on fossil energy. Emphasizing policy implicationshighlights the necessity for enhanced integration of renew-ables, adapted energy efficiency measures, and environmen-tally friendly investment strategies to ensure long-termsustainability goals are met.