Dynamic and threshold effects of energy transition and environmental governance on green growth in COP26 framework

Energy transition, green investment, and climate governance are core agendas of the COP26 framework. Therefore, this research explores the influence of energy transition and environmental governance by controlling the effects of renewable energy investments and human development in 37 IEA economies from 2010 to 2020. Notably, green growth and COP26 indicators are endogenous and may offer heterogeneous impacts subject to their implementation levels. Therefore, this study applies the dynamic panel threshold model (DPTM) to integrate threshold and endogenous effects of energy transition and environmental governance on green growth. Initially, this study constructed a composite energy transition index (ETI) using principal component analysis and applied DPTM to estimate threshold parameters. The results exhibit that ETI leads to lower green growth for those countries where its value is less than the threshold of 0.485. However, it turns highly significant and positive if ETI exceeds the threshold value. Moreover, environmental regulation shows a significant and positive influence on green growth; nevertheless, the marginal contribution towards green growth is more substantial if the environmental regulation score is higher than 0.604. Likewise, the moderating effect of ETI and environmental regulations report a more pronounced impact in stimulating green growth. Manifestly, the lagged effects of ETI and environmental regulations are more substantial and positive, which implies that a certain time lag is required to materialize the full benefits of green growth. These results suggest inclusive and long-term policy for energy transition and governance is imperative to achieve green growth agenda.