Does Renewable Energy Transition Reduce Emissions Without Slowing Economic Growth?

The conversation about moving away from fossil fuels to renewable energy is often framed as a way to reduce emissions without impacting the economy. However, these facts complicate the empirical relationship, as do the varied ages of the countries, the different compositions of their industries, the mix of energy types, and the statistical characteristics of the cross-country data. This study questions the relationship between carbon intensity and GDP growth, as renewable energy consumption increases, without the corresponding decrease in CI, by analyzing an unbalanced panel data set of 187 country entities of the World Development Indicators (4,035 complete country-year observations) (2000-2022). The analysis includes descriptive statistics, Tapio decoupling elasticities, categorical tests, trend analysis, two-way fixed-effects models, the use of Driscoll-Kraay inference, outlier robustness, and exploratory development-stage clustering. The initial cross-country comparisons of the measured shares of renewables are counterintuitive: high-income economies tend to have the lowest measured renewable shares, and the mean share of renewables in expansive-negative decoupling observations is higher than in stronger decoupling states. This is mainly due to the difference in inclusion of traditional biomass in the measured renewable consumption and differences between development stages, as revealed by income group analysis. Absorbing country and year heterogeneity by means of the two-way fixed effects change the result drastically. The coefficient is negatively associated with carbon intensity (beta = -0.0039941, p = 9.726 x 10^-13) and is even more precisely estimated, with Driscoll-Kraay standard errors (SE = 0.00021295, p < 2.2 x 10^-16). On the other hand, there is no statistically significant relationship between renewable share and annual GDP growth (beta = 0.0065119, p = 0.7090; Driscoll-Kraay p = 0.7846). The emissions result remains unchanged for those specifications that are lagged or outlier-exclusion, at the values of -0.0037259 and -0.0033010, respectively. The evidence thus strongly points to a qualified conclusion: countries with higher renewables shares also have lower carbon intensities, and there is no evidence that the transition on average has a systematic negative effect on annual economic growth within countries.