Accelerating energy transitions in major economies can create positive spillovers globally, even amid geopolitical tensions, with North America and the Eurozone driving progress in other regions.
Accelerating the energy transition in major economies could generate positive spillovers in other parts of the world, according to new research.
The research paper “The consequences of the energy transition: evidence from North America, Europe and China”, available in the magazine Science of the total environmentexamines the impact of the energy transition based on the assumption that policy changes in one part of the world can have consequences in other countries.
Research author Luccas Assis Attílio, from the Federal University of Ouro Preto in Brazil, used a time-varying Global Vector Autoregressive model from January 2001 to December 2020, covering 38 countries representing 60% of the world’s population. The framework included financial, real, nominal and non-economic variables to provide an overarching understanding of how the energy transition will impact broader economies.
Attílio told pv magazine his results showed that progress in energy transition in one region can influence other regions. “In other words, the global energy transition can benefit from regional dynamics, creating a kind of regional wave or peer effect, where countries tend to follow the progress of others,” he said.
The research paper says energy transitions in North America and the Eurozone have a positive impact on transitions in other regions, while the energy transition in China initially has a negative effect that disappears over time.
Attílio analyzed the long-term links between the domestic energy transition and economic and non-economic variables, and found that the The international energy transition is positively correlated with the domestic energy transition in all economies except Latin America. “Therefore, estimates suggest that international coordination can promote domestic energy transitions,” his article says.
The relationship between climate change, energy transition and income inequality is also examined. “The results suggest that climate change has a small effect on domestic inequality, that the US energy transition increases domestic inequality, and that China’s energy transition reduces domestic inequality,” the paper says. “These estimates indicate that the energy transition is not a neutral process in terms of income inequality.”
Although the research paper does not cover the latest geopolitical developments, Attílio pv magazine that he believes there is still room for spillovers in a more fragmented geopolitical environment.
“For example, when the United States raised tariffs during the Trump administration, many countries responded by strengthening trade agreements with other partners to offset the shock. In other words, when restrictions occur in one part of the global system, countries often look for alternative channels for cooperation and trade,” he explained. “For this reason, spillovers between regions may still occur, although their intensity and transmission channels may change under new geopolitical conditions.”
In the research paper Attílio adds that the main policy recommendation from his research emphasizes the need for this international coordination.
“Climate change is a global challenge, and the effectiveness of one country’s efforts can be undermined if other countries do not adopt policies aligned with the same goals,” the paper says. “Similarly, the energy transition exerts a global influence. Given the observation that energy transitions are mutually reinforcing, the estimates provide arguments in support of international cooperation.”
Attílio suggested that pv magazine several policies that can support the promotion of a sustainable energy transition, including higher taxes on fossil fuels, tax cuts or tax incentives for renewable energy technologies, and public programs that provide subsidized credits to consumers and businesses that embrace renewable energy.
“Also greater international trade integration, especially regarding the exchange of crucial minerals, and stronger international coordination of climate and energy policies, which is easier said than done but could strengthen the global energy transition,” Attílio said.
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