Assessing the effectiveness of renewable energies, market-based, and non-market-based policies in reducing greenhouse gas emissions in European Union countries

The transition to renewable energy and the implementation of adequate environmental instruments are crucial measures to prevent carbon lock-in. To this end, this analysis scrutinizes the impacts of renewable energies, GDP per capita, and environmental policy, in particular market-based and non-market-based environmental strategies, on GHG emissions in selected European Union countries. The Instrumental Variable Method of Moments Quantile Regression is used to control for endogeneity. In addition, new techniques, such as quantile slope homogeneity, quantile unit root, quantile cross-sectional dependence, and quantile causality tests, are used. The main findings reveal that the negative effect of renewable energies persists across the distribution of GHG emissions. However, this effect is weaker at high emission levels than at low emission levels. Concerning market-based instruments, they reduce GHG emissions at low and medium levels. Furthermore, the magnitude of this effect progressively diminishes as GHG emissions increase. When considering non-market-based instruments, their impact is negative at medium and high levels of GHG emissions. In addition, their effect is increasing with the level of GHG emissions. Finally, the quantile causality test and robustness checks using Smoothed Instrumental Variables Quantile Regression and Quantile Regression with Common Shocks confirm the baseline results. These results emphasize the necessity to adapt environmental instruments to the level of GHG emissions to attain optimal results. This is not applicable.