The renewable energy challenge in developing economies: An investigation of environmental taxation, financial development, and political stability

Abstract The phenomenon of accelerated economic growth and heightened energy consumption in emerging economies is resulting in a substantial upsurge in CO 2 emissions. Due to the inescapable apprehensions around climate change and the diminishing availability of fossil fuel resources, there exists a pervasive need on a worldwide scale to transition towards renewable energy sources. However, emerging economies have unique hurdles in adopting renewable energy technologies, owing to low financial resources, volatile political environments, and insufficient regulatory frameworks. Therefore, the present study aims to examine the effectiveness of financial development, environmental taxation, and political stability in facilitating the adoption of renewable energy in developing countries. The system‐Generalized Method of Moments approach was used to analyze the dataset including 17 emerging economies spanning the period from 1994 to 2021. The study also utilizes the cross‐sectional autoregressive distributed lag approach, and the results obtained from cross‐sectional autoregressive distributed lag align closely with those obtained from the system‐Generalized Method of Moments estimates, thereby confirming the reliability and strength of the findings. Results show that environmental taxes encourage the adoption of renewable energy; however, political stability and financial development help to provide a feasible structure for the adoption of renewable energy. The findings will contribute to the development of viable policy recommendations for these economies to facilitate the advancement of sustainable energy transitions.