Booms, busts, and the shift to renewables

This paper examines how business cycle fluctuations shape renewable energy adoption using a global panel of 178 economies over 1985–2022. Combining local projection methods with nonlinear smooth transition autoregressive (STAR) models, we estimate the dynamic and state-dependent responses of the electricity mix to economic downturns and recoveries. We find that renewable adoption is systematically countercyclical: recessions are associated with significant increases in renewable electricity shares, while expansions temporarily reinforce fossil fuel use. These effects are heterogeneous across countries and depend on income levels, foreign direct investment exposure, trade openness, and energy exporter status. Environmental policy stringency plays a stabilising role. Economies with stronger regulatory frameworks sustain renewable adoption across both downturns and recoveries, whereas weaker policy regimes experience procyclical reversals. The results highlight how macroeconomic conditions, structural characteristics, and policy design jointly shape the resilience of the energy transition.