Challenging the dominance of fossil energy? Tracing the neglected link among energy transition and energy efficiency in 120 countries

Approaching the limits of the natural environment's capacity to absorb waste generated by economic activities requires overcoming the dominance of fossil energy sources, but the transition to clean energy sources is also a matter of efficiency. At this point, the impact of the energy transition on economic activity is not confined to a particular channel but is multifaceted. However, the interactive effect of the energy transition with energy efficiency has not been sufficiently considered in the energy-growth nexus literature. In this context, this study addresses the direct and energy efficiency interactive effects of energy transition and applies panel data analysis for 120 countries. It also takes energy transition into account in its 10 subdimensions. The key findings are based on the difference GMM approach and strongly support that economic gains from energy transition depend on energy efficiency. Furthermore, the interactive favorable effect of the energy transition in its sustainable dimension was found to be highest. Conversely, positive interactive impact for infrastructure and finance & investments dimensions was estimated to be the lowest. Additionally, for the energy transition’s innovation metric, a favorable impact was not supported by the findings. Besides, results regarding the direct impact of the energy transition also do not support its favorable economic consequences. On the contrary, for most energy transition indicators, the direct impact is found to be negative. In this regard, this study provides an empirical basis for actively supporting the energy transition due to its economic benefits, while also provides ground for which dimensions of energy transition can generate stronger advantages depending on energy efficiency.