This research investigates the multifaceted influence of geopolitical risk (GPR) on energy transition (ET), defined as the shift towards renewable and clean energy sources to mitigate the environmental impacts of energy consumption. Achieving carbon neutrality is a central goal, necessitating a transformation away from fossil fuels. Environmental regulations and green innovation are crucial for this transition. Environmental regulations directly and indirectly influence energy efficiency by establishing standards, mandating energy-saving technologies, and internalizing environmental costs through mechanisms like carbon pricing. Green innovation, encompassing technologies that enhance resource efficiency and reduce emissions, is another key driver. The Russia-Ukraine conflict exemplifies the complex nexus between geopolitical risks and energy, impacting supply chains, prices, and policy decisions. While some argue that geopolitical risks hinder ET, others suggest they can act as catalysts. This study aims to clarify this relationship, particularly within OECD countries, examining the moderating roles of environmental regulations and green innovation.

Existing literature on energy transition and geopolitical risk reveals differing perspectives. Some scholars highlight the dual nature of geopolitics, both accelerating and hindering ET, while others focus on its negative impact on renewable energy projects. The literature also emphasizes the pivotal role of environmental regulations in driving ET by promoting energy efficiency, innovation, and low-carbon technologies. Studies show that stricter regulations lead to improvements in energy efficiency and structural changes in energy development. Regarding green innovation, research underscores its crucial role in facilitating ET by enhancing renewable energy utilization, reducing reliance on fossil fuels, and lowering greenhouse gas emissions. Various studies have demonstrated the positive impacts of green financing, green technologies, and environmental policies on energy transition, highlighting the importance of technological innovation and governmental support for structural reforms. However, a gap exists in research specifically focusing on OECD countries and the interplay of geopolitical risks, environmental regulations, and green innovation in driving energy transition.

This study employs a balanced panel dataset covering 20 OECD countries from 1991 to 2020 (600 observations). The dependent variable is energy transition (ET), measured as the percentage of renewable energy consumption in total energy consumption. The key explanatory variable is the geopolitical risk index (GPR) from Caldara and Iacoviello (2022), converted from monthly to annual data. Green innovation (GI) and environmental policy stringency (EPS) are from the OECD database. Control variables include inflation (IFLA), total natural resource rents (NRR), economic globalization (EG), and the official exchange rate (EXR). Descriptive statistics and correlation analysis were performed. A variance inflation factor (VIF) test was conducted to assess multicollinearity. A linear regression model (Model 1) was established to examine the impact of GPR on ET, incorporating control variables. Models 2 and 3 explored the moderating effects of EPS and GI, respectively, by including interaction terms. To account for potential non-linear effects, panel threshold regression models (Model 4) were used with EPS and GI as threshold variables. Bootstrap sampling was employed to determine the significance of threshold effects. Robustness checks involved lagging variables by one period, using alternative GPR calculation methods (geometric mean), and conducting endogeneity tests using instrumental variables (lagged GPR).

The linear regression model (Model 1) revealed a significant positive relationship between geopolitical risk and energy transition. A 1% increase in GPR led to a 0.117% increase in ET. Models 2 and 3, incorporating interaction terms, confirmed the moderating effects of environmental regulation (EPS) and green innovation (GI). Strengthening environmental regulations and increasing green innovation amplified the positive impact of geopolitical risk on energy transition. The threshold regression analysis (Model 4) showed nonlinear relationships. With environmental regulation as the threshold, the positive effect of geopolitical risk on ET was significantly stronger when environmental regulation exceeded the threshold (0.9042). Similarly, with green innovation as the threshold, the positive effect was significantly stronger above the threshold (2.3437). Robustness checks using lagged variables, alternative GPR calculation methods, and instrumental variables consistently supported these findings. Lagging the energy transition variable by one period further strengthened the positive impact of geopolitical risk on energy transition. The geometric mean calculation of GPR also reinforced the robust positive relationship of GPR and ET.

The findings challenge the conventional view that geopolitical risks solely impede energy transition. The positive relationship observed suggests that geopolitical uncertainties, particularly disruptions in traditional energy supply chains, can motivate countries to accelerate the adoption of renewable energy and green technologies. The moderating effects of environmental regulations and green innovation highlight the importance of policy frameworks that incentivize innovation and sustainable energy solutions. The nonlinear relationships indicate that the impact of geopolitical risks is not uniform but is amplified under stronger environmental regulations and higher levels of green innovation. This suggests that effective policies should focus on creating an enabling environment for green innovation and strengthening environmental regulations to maximize the positive influence of geopolitical risks on energy transition.

This study demonstrates a robust positive relationship between geopolitical risk and energy transition in OECD countries, particularly when strengthened by environmental regulations and green innovation. The nonlinear relationships revealed highlight the importance of integrated policy strategies that combine robust environmental regulations with substantial investment in green innovation. Future research could explore the regional variations in this relationship, delve deeper into specific policy mechanisms, and investigate the long-term impacts of geopolitical risks on different types of renewable energy technologies.

The study's focus on OECD countries limits the generalizability of the findings to other economic contexts. The use of a specific geopolitical risk index might not fully capture all aspects of geopolitical uncertainty. While endogeneity concerns were addressed, other unobserved factors could still influence the results. Further research employing more diverse data sources and methodologies is needed to address these limitations.