An empirical analysis to examine the role of institutions in bridging the gap between environmental policy stringency and energy poverty.

ABSTRACT

The findings related to strict environmental policies and energy poverty have been found contradictory. Strict environmental regulations may protect the environment by enhancing renewable energy resources but at the same time, major dependent sectors and consumers reliance on non-renewable energy resources face the problem of energy poverty. Moreover, environmental policies either soft are strict and depend on stakeholders' preferences, and such policies are implemented through institutions. Considering these aspects, the current study examines the impact of environmental policy stringency on energy poverty and further examines the role of institutions in bridging the gap between environmental policy stringency and energy poverty for the selected 31 countries from 1996 to 2020. For empirical analysis, Pooled OLS, random effect model, and system generalized methods of moments (GMM) are applied. To check the robustness of baseline models, spatial lag, spatial error, and feasible generalized methods of moments are applied. Furthermore, to examine the mediating role of institutions, we applied the structural equation modeling technique. Empirical analysis shows that an increase in environmental policy stringency significantly increases energy poverty, while institutional proxies significantly decrease energy poverty. The interactive effects of institutional proxies indicate declining effects on energy poverty. More importantly, institutions act as important mediators between environmental policies and energy poverty. Based on the findings, this study recommends soft environmental policies to maintain a balance between a sustainable environment and minimum energy poverty. This study further recommends authorizing and strengthening the institutions to formulate and regulate balanced environmental policies for environmental safety along with reduced energy poverty. This study further recommends increases in urbanization, personal remittances, and enhanced energy efficiency to minimize energy poverty.