Do Energy and Environmental Taxes Stimulate or Inhibit Renewable Energy Deployment in the European Union?

Abstract

The modern lifestyle and economic development of the European Union countries are closely connected to high energy consumption and environmental pollution. Renewable energy has arisen as one solution to this problem, even though the obstacles and challenges regarding the deployment of renewable energy lie in high costs, technology and legislation. The investigation of the determinants of renewable energy has become very attractive and popular because of the Sustainable Development Goals and COP26 targets. Therefore, this paper aims to explore the role of energy taxes and environmental taxes in addition to that of economic and environmental indicators in renewable energy development for the panel of EU countries by applying reliable and robust econometric techniques to the annual data from 1995 to 2019. The empirical results suggest that an increase in economic growth and oil prices supports renewable energy while environmental taxes and energy taxes have a negative impact on renewable energy deployment in EU countries. Thus, it is crucial to reform the structure of taxes to support the use of renewable energy. In addition, increasing environmental taxes to transform EU countries into energy-efficient economies will require additional EU policy adjustments.