Unraveling the impact of financial stress and trade policy uncertainty on advancing renewable energy transition in the USA

Abstract

Renewable energy consumption (REC) has become the most suitable option to tackle the issues of energy security and climate change because it is a sustainable, clean, and affordable energy source. Literature on the determinants of REC is growing rapidly, but most rely on linear analysis. This analysis is a nonlinear perspective on the impact of financial stress and trade policy uncertainty on REC in the USA over 1995Q1-2021Q4. The study uses autoregressive distributed lag and nonlinear autoregressive distributed lag for empirical analysis. The linear estimates reveal that financial stress and trade policy uncertainty reduce long-run (LR) REC. On the other hand, the nonlinear estimates suggest that positive changes in financial stress and trade policy uncertainty reduce REC, whereas the negative changes in both these factors boost REC in the LR. While the GDP causes an improvement in REC, environmental technologies do not significantly impact the REC in the LR. In the short-run, only the linear and nonlinear estimates of financial stress and environmental technologies significantly impact REC. Due to the asymmetric nature of the findings, policymakers must take into account the positive and negative changes in the financial stress and trade policy uncertainty while devising policies to promote renewable energy transition.