Energy transition and environmental stability prospects for OECD economies: The prominence role of environmental governance, and economic complexity: Does the geopolitical risk matter?

ABSTRACT

The global increase in temperature and climate change signals the need for humanity to reduce greenhouse gas emissions and to adopt eco-friendly lifestyles. The 2023 United Nations Climate Change Conference (COP28) in the UAE emphasized this, urging nations to commit to the Paris Agreement and pursue a greener, carbon-free future. In recent decades, climate change has become a critical issue, primarily because of the extensive use of fossil fuels and conventional energy resources. Economic growth has led to an increase in energy consumption and widespread environmental damage. The present study empirically explores whether any changes in environmental governance, economic complexity, geopolitical risk, and the interaction term influence energy transition and environmental stability in OECD economies over the period 1990-2021. Novel econometric methods, including Westerlund co-integration and the Method of Moments Quantile Regression (MMQR), are employed to address complexities such as cross-sectional dependency and panel causality. The key findings from the MMQR technique showed a positive link between environmental governance and economic complexity in driving sustainable energy transitions, thus bolstering environmental resilience in OECD countries. However, economic complexity counterbalances environmental stability. Significantly, geopolitical risk acts as a moderating variable, enhancing the effects of governance and complexity on sustainable energy practices and environmental stability. Based on these insights, this study recommends strategic initiatives, including investment in eco-friendly technologies, to fast-track the shift to clean energy and strengthen environmental resilience in OECD countries. These strategies align with the broader objectives of global sustainable development, offering a path towards a greener and more sustainable future.