Economic policy uncertainty and renewable energy transition: Assessing the impact of resource richness, environmental technology, and environmental governance

Abstract

The urgency of transitioning to renewable energy is a core priority under the United Nations Sustainable Development Goals (SDGs). However, economic policy uncertainty (EPU) remains a significant challenge in achieving a stable and sustained renewable energy transition (RET), particularly in resource-rich regions such as the Arctic Council countries (Sweden, the United States, Finland, Norway, Canada, Russia, and Denmark). Despite the wealth of literature on RET, research on the Arctic region remains scarce, particularly regarding the interplay between EPU, resource abundance, environmental technology, and governance. This research fills the gap by examining the impact of these factors on RET in the Arctic from 1990 to 2020, employing the Method of moment quantile regression (MMQR) approach to capture heterogeneous effects across different quantiles of RET distribution. The empirical findings reveal that a 1 % rise in economic policy uncertainty leads to a decline in RET between 0.287 % and 0.557 % across different quartiles, indicating a robust negative impact. Conversely, a 1 % increase in natural resource endowment (0.108 %–0.402 %), environmental technology (0.408 %–0.810 %), and environmental governance (0.216 %–0.633 %) enhances RET, with varying degrees of intensity across RET distributions. Additionally, the robustness analysis, conducted through DOLS and FMOLS, reaffirms the inverse and strong dynamics between economic policy uncertainty and RET, underscoring that policy instability disproportionately affects lower quantiles of RET. The policy implications are threefold. First, Arctic nations must implement stabilized and predictable economic policies to mitigate uncertainty, as fluctuations in economic policy hinder investment in renewable infrastructure. Second, policies should prioritize resource allocation towards clean energy development, ensuring that natural resource wealth is not solely invested into conventional energy sectors but redirected to facilitate RET. Lastly, enhancing environmental technology and governance frameworks through targeted investments and regulatory incentives will further accelerate the transition toward clean energy.