Electricity prices, renewable energy, and sustainability of the energy and manufacturing sectors in the new EU member states

Abstract

This paper investigates the impact of renewable energy consumption, foreign direct investment (FDI), and electricity pricing on carbon dioxide (CO₂) emissions in the energy supply and manufacturing sectors of Central and Eastern European (CEE) countries in the period 2007–2021. This study uses dynamic panel data models to examine the Environmental Kuznets Curve (EKC) and the pollution haven and halo hypotheses to understand the sector-specific emission patterns and identify the factors that influence environmental sustainability. Most other studies do not consider a sectoral approach providing the same proposals for all sectors, while this paper provides original, sector-targeted policy recommendations to balance economic growth with EU climate goals, emphasizing renewable energy incentives and stringent FDI standards. The results reveal an N-shaped relationship between economic growth and CO₂ emissions in the energy sector and an inverted N-shaped relationship in the manufacturing sector, indicating distinct emission trajectories that warrant targeted policy responses. The empirical findings demonstrate that renewable energy consumption significantly reduces emissions in both sectors, substantially impacting the energy sector. Additionally, the U-shaped relationship between FDI and CO₂ emissions suggests that while FDI initially brings cleaner technologies (halo effect), it may later contribute to higher emissions under insufficient environmental regulations (haven effect). Higher electricity prices for non-household consumers are also found to effectively lower emissions, particularly in the energy sector, by encouraging energy-efficient practices.