Energy efficiency in times of geopolitical uncertainty: A global analysis across income levels

Abstract

Macroeconomic uncertainties—such as political risk and economic policy instability—have been widely examined in relation to energy transition, security, and environmental performance. However, their impact on energy efficiency remains underexplored. A key question emerges: do geopolitical risks impede energy efficiency or do they compel governments to enhance efficiency and reduce import dependence? This paradox calls for empirical investigation. While recent studies suggest that geopolitical threats may still improve energy efficiency in Europe due to their advanced infrastructure and technological capacity, it is unclear whether these findings hold globally and how outcomes differ across income groups. To address this gap, we employ a news-based geopolitical risk index and endogenous stochastic frontier analysis (SFA) to provide a comprehensive global assessment across income levels and time periods for 1985–2022. The results show that geopolitical risks significantly increase global energy inefficiency, with low-income countries most severely affected. However, evidence indicates that, over time, countries may adapt by improving efficiency and diversifying energy sources. Counterfactual scenarios analysis further demonstrates that reducing geopolitical risks could lower global energy inefficiency by at least 13%. These findings highlight the importance of policies that both mitigate geopolitical risks and strengthen the resilience of energy systems worldwide.

Graphical abstract