Economic development and renewable energy adoption: regional evidence from the European Union

Abstract

This study aims to examine how economic development and energy prices shape renewable energy adoption in the European Union, with explicit attention to regional heterogeneity and nonlinear effects relevant for European Union climate and cohesion objectives. Using Eurostat data for EU countries over the period 2013–2022, the analysis uses fixed-effects panel models with quadratic specifications. Renewable energy adoption is related to real gross domestic product (GDP) per capita, household natural gas prices and household electricity prices. Institutional quality and EU cohesion funding are incorporated as control variables, and dynamic panel models are used as robustness checks. The results reveal a positive but nonlinear relationship between income levels and renewable energy adoption, with particularly robust effects in Northern Europe. The impacts of gas and electricity prices are heterogeneous across regions and specifications, indicating that price signals operate unevenly and are conditioned by institutional and market characteristics. Dynamic estimates confirm strong persistence in renewable energy shares and turn down some static price effects. Findings stress the importance of policies tailored to regional disparities to ensure both environmental sustainability and social equity in the shift to a low-carbon future. Unlike existing studies, which typically examine regional heterogeneity and nonlinear income effects separately, this study jointly analyzes household energy prices, GDP dynamics and institutional conditions across European regional groups, providing evidence directly relevant to differentiated EU cohesion and energy policy.