Renewable Energy Transition and Public Debt Dynamics: Implications for Fiscal Sustainability

The transition toward renewable energy has accelerated globally in response to climate commitments and the need for sustainable energy systems, raising important questions about its fiscal implications. Focusing on India, this study investigates the relationship between renewable energy consumption and public debt while controlling for key macroeconomic factors, including economic growth, inflation, and non-renewable energy consumption. Using annual data from 1992 to 2022, the analysis employs the Autoregressive Distributed Lag (ARDL) model and Dynamic ARDL simulations to examine both short-run and long-run dynamics. In addition, Kernel-based Regularized Least Squares (KRLS) is applied to explore heterogeneous marginal effects and potential nonlinearities in the relationship between renewable energy expansion and government debt. The results reveal a time-dependent relationship between renewable energy consumption and public debt. In the short run, renewable energy expansion contributes to a reduction in public debt through efficiency gains and reduced dependence on fossil fuels. However, in the long run, renewable energy consumption exerts a positive and statistically significant impact on government debt, reflecting the substantial investment requirements associated with renewable energy infrastructure development. Economic growth consistently reduces public debt, while inflation provides only temporary relief in the short term. Robustness checks using FMOLS and DOLS confirm the stability of the long-run estimates. These findings highlight the importance of integrating renewable energy policies with prudent fiscal planning and expanding private investment mechanisms to support sustainable energy transitions.