The roadmap to net‐zero emission: Do geopolitical risk and energy transition matter?

• Published date: 01 November 2023
• Author: Alex O. Acheampong,Eric Evans Osei Opoku,Olufemi Adewale Aluko
• Date: 01 November 2023
• DOI: http://doi.org/10.1002/pa.2882

RESEARCH ARTICLE

The roadmap to net-zero emission: Do geopolitical risk

and energy transition matter?

Alex O. Acheampong

1,2

| Eric Evans Osei Opoku

3

| Olufemi Adewale Aluko

4

1

Bond Business School, Bond University, Gold

Coast, Australia

2

Centre for Data Analytics, Bond University,

Gold Coast, Australia

3

Nottingham University Business School

China, University of Nottingham Ningbo

China, Ningbo, China

4

Leeds University Business School, University

of Leeds, Leeds, UK

Correspondence

Alex O. Acheampong, Bond Business School,

Bond University, Gold Coast, Australia.

Email: aacheamp@bond.edu.au

Global crises have heightened policy uncertainties and efforts to address global climate

change. Limited evidence exists in the literature on geopolitical risk's direct and indirect

roles in addressing global emissions. In this study, we examine whether geop olitical risk

could impede or facilitate efforts to attain a net-zero emissions target through energy

transition using panel data for 42 countries from 1990 to 2020. Various econometric

techniques were applied in this study to present robust findings and reliable conclusions.

Estimates from the Driscoll-Kraay, Lewbel two-stage least squares and method of

moment regression techniques consistently showed that countries' geopolitical risk

directly increases emissions (total greenhouse gas, carbon, methane, and nitrous oxide).

At the same time, energy transition, measured with renewable energy consumption, mit-

igates these emissions. In addition, evidence from the partial linear functional-coefficient

model technique indicates that renewable energy consumption consistently mitigates

emissions when geopolitical is minimal (at a minimum and mean level). However, the

role of renewable energy consumption in reducing emissions becomes weaker when

geopolitical risk is heightened—thus, when geopolitical risk reaches its maximum level.

We recommend that efforts to sustain renewable energy transition and maintain geopo-

litical stability are vital for achieving net-zero emissions and climate change mitigation.

KEYWORDS

energy transition, geopolitical risk, net-zero emission

1|INTRODUCTION

We examinethe effect of geopoliticalrisk on environmental sustainabil-

ity through greenhouse gas (GHG) emissions and how geopolitical risk

shapes the effect of energy transition (renewable energy consumption)

on the environment. This is an important exercise in general as the

impactof climate change –a conditionreckoned to be mainlyinfluenced

by anthropogenic GHG emissions (Lynas et al., 2021; Stern &

Kaufmann, 2014)–is ravaging the globe, and geopolitical risks are on

the rise. Considering the harsh consequences of climate change, espe-

cially in recent decades and the increasing emissions levels, mitigation

strategieshave heightened. Transitioning to a low carbon economyand,

eventually, a net-zero emission world is a major policy direction across

the globe. The United Nations has emphasized that global concerted

efforts and cooperation areessential to deal with the emissions-climate

change canker.Among many eminent andimminent challenges posedto

dealing withthis menace is the heightening geopolitical risks.Geopoliti-

cal risks haveaccelerated in the lastfew decades in almost everyregion

(Anser,Syed, & Apergis, 2021; Husnainet al., 2022;WEF,2022).

Geopolitical tensions and risks do not only have economic and

politicalramifications but also environmental and climateeffects (Anser,

Syed, Lean,et al., 2021; Olanipekun & Alola,2020; Riti et al., 2022). The

plausible effecton the environment could stem from the effect of geo-

political risks on economic growth, energy consumption, investment,

Received: 21 March 2023 Revised: 28 May 2023 Accepted: 26 June 2023

DOI: 10.1002/pa.2882

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any

medium, provided the original work is properly cited and is not used for commercial purposes.

© 2023 The Authors. Journal of Public Affairs published by John Wiley & Sons Ltd.

J Public Affairs. 2023;23:e2882. wileyonlinelibrary.com/journal/pa 1of18

https://doi.org/10.1002/pa.2882

and innovation, among others (see Dutta & Dutta, 2022; Riti

et al., 2022; Sohaget al., 2022;Sweidan,2022). Geopolitical risks in the

form of wars, conflicts, militarization, and terrorist attacks within and

between countries could stall economic activities, reducing economic

growth. Gleaning inferences from the environmental Kuznets curve, a

decrease in economicactivities may reduce environmental degradation

through reduced resource exploitation and energy consumption

(Apergis & Ozturk,2015; Awaworyi et al., 2018). However, geopolitical

risk could harm the environment by adverselyaffecting investment and

innovation (Anser, Syed, Lean, et al., 2021;Sohagetal.,2022). Climate

actions, including carbon mitigation strategies and energy transition,

require huge financial outlays and investments, which could be

thwarted by geopolitical risks (KPMG, 2022). Innovation is essential in

transitioning to cleaner energy, reducing emissions, and mitigating the

effect of climatechange. Amid geopoliticalrisks, the prospect of innova-

tion is dimmed, affecting research and development (R&D) activities

associatedwith renewable energy generation.

In achieving net-zero emission–akey agendum in the drive for sus-

tainabledevelopment, energy transition, which is basically the shift from

non-renewable energy sources to renewable energy sources, has been

identifiedas critical in meetingthis agenda (see Husnain et al., 2022;Su

et al., 2021; Yuan et al., 2022).The global climate change challenge has

made the source of energyuse a major issue in policy discourses(Bayer

et al., 2013; Liang& Fiorino, 2013). Skea (2014) assertsthat two factors

have strengthened the interest of policymakers/governments in the

energy sector;the first concerns the rise in crudeoil trade/demand and

the high and volatile prices, and the second factor concerns climate

change. The transition to renewable energy requires green financing,

innovativenew sources of financing,and innovative energy investments

(Ang et al., 2017). Ang et al. (2017) emphasize that policymakers must

strengthen the general investment environment to make it conducive

for local and international investors and align it to climate change miti-

gation policies to attract investment in renewable energy. As posited

above, geopolitical risks can affect investment in the energy sector.We

highlight two possible effects of geopolitical risks on energy; (i) first,

geopoliticalrisks may hinder investment in therenewable energy sector

rendering countries to continue to use fossilfuels and exacerbating the

emissions-climate condition. (ii) Second, geopolitical risks may propel

countriesto reduce their dependenceon other countries for energyand

develop theirreliable renewable energyinfrastructure.

Although the environmental economics literature is flooded with

studies on the determinants of environmental degradation/emissions,

the focus has mainly been on economic growth, FDI, trade openness,

and energy consumption (Apergis & Ozturk, 2015; Aluko, Opoku &

Acheampong et al., 2022; Awaworyi et al., 2018; Cole, 2004;

Dinda, 2004; Eskeland & Harrison, 2003; He, 2006;He&

Richard, 2010; Kearsley & Riddel, 2010; Maddison, 2006; Singhania &

Saini, 2021). Analysis of geopolitical risks in this context has started

gaining attention in recent years (Anser, Syed, & Apergis, 2021; Riti

et al., 2022; Sweidan, 2022). Against the backdrop of the prior discus-

sion and the recent rise in geopolitical tensions, we are inspired to

contribute to the discourse. This study examines the effect of geopo-

litical risks and renewable energy consumption on greenhouse gas

emissions using panel data using a sample of 42 countries from 1990

to 2020. The countries considered in this study are strictly determined

by the availability of geopolitical risk data described in the data sec-

tion. Therefore, we based on these 42 countries to generalize how

global emissions would behave if geopolitical risk increases globally. In

addition, these 42 countries are among the leading economies driving

global emissions and hence climate change.

In contrastwith the current literature,we make three key contribu-

tions. First, we examine how geopolitical risk and renewable energy

affect the environment. We consider both the nonlinear and heteroge-

neous effects of these factors. Further, we examine if geopolitical risk

moderatesthe effect of renewable energyconsumption on the environ-

ment. To the best of our knowledge, this is the first studyto do this; as

a result, we incorporate fresh argumentsinto the extant body of knowl-

edge. To do this, we employ the novel partial linear functional-

coefficient model technique (Du et al., 2020;Yonghongetal.,2016).

Our quest to considerthe conditional role of geopolitical risk on renew-

able energy consumption is mainly due to the notion that renewable

energy is important for achieving environmental sustainability, and its

generation can be affected by geopolitical risks, as expounded above.

As Li et al. (2021) argue, geopolitical risks are important factors to be

considered for energy policy. Second, in examining environmental deg-

radation, we employ alternative indicators of the environment –total

greenhouse gas emissions (TGGE), carbon dioxide (CO

2

), methane, and

nitrousoxide emissions. This sharplycontrasts with most empiricalstud-

ies that focusmainly on CO

2

emissions.There are, however, many more

equally important indicators of the environment (Opoku, Acheampong,

Dzator, & Kufuor, 2022a; Opoku, Dogah & Aluko, 2022). Lastly, we

employ many robust alternative estimation methods to ascertain the

results to make more constructive inferences, rather than focusing on

just one methodas is prevalent in the literature. To our knowledge,this

is the foremost paper analyzing geopolitical risk and the environment

that has employed many robust alternative estimation techniques,

accounting for cross-sectional dependency, endogeneity, quantile/

distributional heterogeneity, and nonlinearity. Specifically, we employ

the Driscoll-Kraay, two-step dynamic generalized method of moments,

Lewbel two-stages least square, method of moment regression tech-

niques, and the partial linear functional-coefficient model technique.

Since these techniques have their assumptions, limitations, and advan-

tages, achievingconsistency in the resultstranslates to robustness.

2|LITERATURE REVIEW

Geopolitical risks are risks associated with any kind of conflict (con-

flicts among countries, armed conflicts, crises, militarization, wars, ter-

rorist attacks, and bomb attacks, etc.) or tension between states that

affect the usual and diplomatic course of international relations

(Astvansh et al., 2022; Caldara & Iacoviello, 2022).

1

The rising

instances of regional instability, terror attacks, and other hostile

1

Some geopolitical risks events include the events, for example, 9/11 attack, Bombay attack,

US-Iraq war, Arab Spring, Russia-Ukraine war, and so forth.

2of18 ACHEAMPONGET AL.