The critical challenges of energy diversification and environmental sustainability in the European Green Deal: Empirical evidence from European countries

The European Green Deal identifies energy diversification and environmental sustainability as two central pillars for achieving a secure, resilient, and climate-neutral energy system. Although previous studies have examined the determinants of environmental sustainability and the energy transition separately, limited evidence exists on how energy diversification, globalization, financial development, natural capital, and structural change jointly shape environmental sustainability within the European Green Deal framework. This study addresses this gap by investigating the macroeconomic determinants of environmental sustainability across 26 European countries during 1995-2023. The analysis employs dynamic System GMM as the primary estimation method, complemented by CS-ARDL to examine long-run relationships and machine-learning models with SHAP explainability to assess the relative importance of the explanatory variables. The results reveal strong persistence in environmental sustainability over time. Structural change is the only significant short-run determinant, while energy diversification and political globalization exhibit significant negative long-run effects, whereas financial development and natural capital show no robust long-run influence on environmental sustainability. These findings suggest that energy diversification alone does not guarantee environmental sustainability unless supported by renewable energy deployment, technological innovation, and effective environmental governance. By integrating dynamic econometric techniques with explainable machine learning, this study provides new evidence on the macroeconomic drivers of environmental sustainability and offers policy insights for implementing the European Green Deal more effectively.