Pathways to EU decarbonization: the role of green investment and R&D activity

Анотація

Abstract The European Union faces persistent disparities in its progress toward climate neutrality, despite unified policy frameworks under the Green Deal and Fit for 55. A key unresolved policy challenge is understanding why investment support and R&D efforts accelerate decarbonization in some countries but produce weaker outcomes in others. Existing research offers fragmented insights and rarely evaluates whether investment and innovation effects depend on institutional conditions or nonlinear thresholds. This creates a critical gap: the EU still lacks evidence on the mechanisms through which investment capacity, innovation activity, and governance jointly shape national decarbonization pathways. To address this gap, the study examines how green investment (proxied by greenfield FDI) and R&D influence renewable energy development and CO₂ emissions in 26 EU member states from 2004 to 2023. Fixed-effects regressions, moderation models, and panel threshold techniques are applied to capture both institutional conditioning and potential nonlinearities in the decarbonization process. The empirical results show that both green investment and R&D activity contribute to decarbonization, promoting renewable energy expansion and reducing CO₂ emissions. Green investment displays an inverted U-shaped relationship with emissions, indicating the presence of a threshold beyond which financial flows become more effective. Institutional quality significantly amplifies the effects of both investment and R&D, strengthening their contribution to the energy transition. These findings reveal that investment and innovation do not generate uniform outcomes across the EU; instead, their impact depends on reaching critical investment levels and on the strength of national governance systems. By identifying the structural and institutional mechanisms that shape decarbonization pathways, the study provides actionable evidence for designing differentiated, country-specific climate and investment policies within the EU.

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