Unveiling the linkage between low-carbon energy and energy sources diversification

This research is the first to investigate the effect of low-carbon energy risk on the diversification of energy sources. To this end, a sample of 64 countries from 2000 to 2018 is analysed. For empirical estimations, we employ the Method of Moments Quantile Regression (MMQR) to address heteroscedasticity, the Partially Linear Functional-Coefficient (PLFC) model for non-linear analysis, and the Difference-in-Differences (DID) method to handle the endogeneity of Chinese energy investment. MMQR results show that low-carbon energy risk negatively affects energy sources diversification across all quantiles (10 %-90 %), validating the theoretical linkage. However, the sub-sample analyses demonstrate that a decrease in low-carbon energy risk leads to an increase in energy sources diversification in the developed countries. In contrast, in the developing nations, there is no effect. In addition, PLFC estimations reveal that the non-linear relationship is statistically significant and varies with the stage of economic development. Policymakers should proceed sensitively, taking into account the income structure of the population and the representation and importance of energy-intensive sectors within the national economy. They must not underestimate the level of preparedness of these individual groups for the energy transition. Policymakers must also consider the long-term and pervasive consequences of low-carbon energy risk (LCENR), particularly in times of external shocks or economic instability, especially in highly developed countries. An interesting partial conclusion arising from the DID analysis is the finding that Chinese energy investment did not enhance energy diversification during the period under review and may come at the expense of renewable energy development.