The Role of Climate-Oriented Funding in Advancing Renewable Energy Transition Across the EU

Abstract

The shift to renewable energy is a key goal for the European Union as it aims for climate neutrality; however, the effectiveness of climate-focused funding instruments varies significantly across member states. This research investigates the influences of mitigation investments, R&D spending, environmental tax revenues, subsidies, GDP growth, and capital formation on renewable energy expansion within the EU-27, placing particular emphasis on the structural differences between Old Member States (OMS) and New Member States (NMS). The study utilizes robust long-run estimation techniques alongside causality analysis over a span of 13 years, from 2010–2023. The findings highlight notable distinctions among the EU-27, OMS, and NMS regions. While the EU-27 and OMS show that funds designated for climate mitigation and R&D are critical drivers of the clean energy transition, in the NMS, environmental taxes, subsidies, innovation, and gross fixed capital formation play vital roles in advancing this transition. Furthermore, economic development shows mixed results in achieving sustainable objectives, underscoring the necessity for climate-oriented funding and initiatives. Therefore, policy measures should focus on mitigation finance and innovation across the EU, while the design of subsidies and environmental tax structures must be tailored to each region to ensure a fair and expedited transition.