Can Uncertainty be Green? Renewable Energy, Trade Openness, Institutional Quality and Environmental Sustainability Across Different Uncertainty Regimes

ABSTRACT

This paper examines how uncertainty shapes the environmental effects of energy use, trade openness, economic growth, and institutional quality, with particular emphasis on the role of renewable energy in advancing environmental sustainability and the low‐carbon transition. Using a dynamic panel threshold model with endogenous regressors for 135 countries over the period 1996–2022, we identify a significant uncertainty threshold that alters the impacts of energy use, trade openness, economic growth, and institutional quality. The results show that renewable energy exerts a stronger emission‐reducing effect under high uncertainty. Trade openness and institutional quality also become more effective in reducing emissions in the high‐uncertainty regime, while economic growth intensifies CO ₂ emissions mainly in low‐uncertainty environments, and nonrenewable energy consumption becomes particularly harmful during high‐uncertainty periods. Robustness checks by income group show that upper‐middle‐ and high‐income economies exhibit regime‐switching behavior, whereas low‐ and lower‐middle‐income countries follow a linear emissions process with no significant threshold effect. Overall, the findings highlight the importance of renewable energy, alongside stronger institutions and trade‐enabled technology diffusion, for emission mitigation, especially when uncertainty is elevated.