Financial Development, Environmental Policies, and Green Innovation: Heterogeneous Drivers of Renewable Energy Transition in OECD Countries

Abstract

This study examines the impact of financial development, environmental policy stringency, and green innovation on renewable energy across OECD countries during 1990–2022. The present research employs a distributional approach across various quantiles to capture heterogeneous effects on renewable energy consumption and production capabilities. The empirical results reveal substantial heterogeneity in financial development impacts, with insignificant negative effects at lower quantiles but strong positive effects at higher quantiles, indicating benefits primarily for countries with established renewable energy markets. Environmental policy stringency exhibits an opposing pattern, generating the strongest effects for countries with limited renewable energy adoption, while diminishing at higher quantiles. Green innovation demonstrates a consistent positive impact across the entire distribution, serving as a fundamental driver regardless of countries’ renewable energy positions. These findings demonstrate that effective renewable energy strategies require differentiated approaches based on countries’ development stages. For early-stage countries, environmental policies combined with innovation support prove most effective, while advanced markets benefit primarily from deepened financial development. This evidence enables policymakers to design targeted interventions that align with countries’ specific renewable energy capabilities and market conditions.