Green Energy Transition and Sustainable Development Outcomes in Europe: Evidence of Threshold and Moderating Effects

ABSTRACT

This study applies a Panel Smooth Transition Autoregression (PSTAR) model to examine the impact of renewable energy consumption (REC) on sustainable development in 20 European countries from 2005 to 2023. The results reveal a nonlinear relationship with two regime thresholds for the logarithm of REC at 3.015 and 3.363, corresponding to REC shares of approximately 20.4% and 28.9%, respectively. In the low‐adoption regime, REC has a statistically significant but economically limited effect on CO ₂ emissions, mainly due to transitional adjustment costs, including grid expansion, storage investment, and backup capacity requirements. After REC exceeds the second threshold, its impact becomes significantly negative, leading to considerable reductions in CO ₂ emissions and stronger environmental sustainability outcomes. Robustness checks using system GMM confirm this nonlinear pattern and support a U‐shaped relationship between REC and emissions. Furthermore, interaction effects indicate that fossil fuel consumption, public expenditure, and urbanization reinforce REC's positive contribution to sustainable development by strengthening its capacity to reduce environmental degradation. These findings imply that policymakers should prioritize grid modernization and storage infrastructure during early transition stages, promote targeted subsidies and research and development in intermediate stages, and strengthen carbon pricing, sector coupling, fossil fuel phase‐outs, sustainable urban planning, and green public investment in mature renewable energy regimes. Overall, the study highlights that the environmental benefits of renewable energy are not immediate but accrue as countries reach adoption levels, underscoring the importance of coordinated energy, fiscal, and development policies to ensure long‐term economic resilience, energy security, and sustainable growth across Europe.