Disorderly transitions: How governance and fiscal asymmetries shape clean energy spillovers in Europe

Abstract

The study explores the institutional and fiscal determinants of clean energy (CLEAN) adoption across 14 European Union member states between 2010 and 2019, uncovering how governance quality, procurement practices, public investment, and banking sector fragility shape renewable energy shares both domestically and across borders. The findings reveal that non-competitive procurement, though occasionally used to expedite renewable projects under decarbonization deadlines, significantly undermines CLEAN outcomes when accounting for endogeneity and generates negative spillovers that erode investor trust in neighboring states. Similarly, banking distress, measured through non-performing loan ratios, stimulates domestic CLEAN investment via compensatory fiscal interventions, yet depresses cross-border capital flows vital to collective decarbonization goals. Public capital expenditure is shown to misalign with CLEAN objectives, often reinforcing fossil-dependent infrastructure, with statistically significant spillover effects that hinder regional progress. While environmental policy stringency is a strong driver of CLEAN in institutionally mature countries, its effects weaken where regulatory enforcement is uneven. The study underscores the critical role of contract monitoring and procurement transparency in shaping effective renewable strategies and highlights the need for coordinated policy frameworks that internalize externalities. These findings offer direct implications for EU cohesion policy, fiscal programming, and regulatory harmonization aimed at a just and efficient energy transition.