Energy transition determinants in the European Union: threshold effects

The World Economic Forum (2018) has introduced a comprehensive proxy for the Energy Transition Index (ETI), which includes two main sub-indices; the energy System Performance Index (SPI) and Transition Readiness (TRI). The first sub-index measures the current state of the energy system, and the latter indicates future transition(s). Any factor that can move these two levers in a positive direction will eventually lead to improved energy transitions. Various factors affect the energy transition. Since the ETI is a comprehensive index that includes socio-economic, governance structures, and political dimensions of the energy transition, it is expected to be impacted by globalization and economic complexity. The present study seeks to answer whether the impact of globalization and economic complexity on both energy transition sub-indicators is in the same direction. Also, do the effects of these two variables vary at different levels of energy transition and its sub-indices? For this purpose, we implement a fixed-effect panel threshold model for data from the European Union. The results demonstrate that (overall) globalization significantly influences the ETI and its sub-indices at all levels. The economic complexity in all three regimes reduces TRI (at 90% or 95% confidence intervals). Nevertheless, it harms the SPI and ETI if they exceed the threshold.