Victoria Kovalenko

Type of the article: Research Article

Abstract
Renewable energy expansion is a cornerstone of environmental policy, yet empirical evidence on whether restricting international public finance for fossil fuels accelerates this transition remains scarce. This study assesses whether international public finance restrictions on fossil fuels promote renewable energy development across a panel of 128 countries, and how banking system depth moderates this policy effect. The analysis employs fixed-effects models with country-specific linear trends, validated through event-study, placebo, and first-difference checks, drawing on World Bank and Clean Energy Transition Partnership data. The results indicate that fossil fuel finance restrictions increase the share of renewable energy in total final energy consumption by 11.5-15.3 percentage points (p < 0.05), representing a relative increase of 40–53% compared with the sample mean of 28.9%. The first-difference estimator confirms that restrictions add nearly 1 percentage point to annual growth in the renewable energy share (β = 0.908, p = 0.013). The effect concentrates on non-hydro technologies: excluding hydropower, the estimated increase reaches 15.1 percentage points (p = 0.013), indicating that the policy primarily stimulates solar and wind deployment. Banking system depth significantly moderates these effects (p < 0.05): the policy impact is virtually zero where domestic credit is below 25% of GDP, but reaches 12.9 percentage points where credit exceeds 100% of GDP. This conditional pattern shows that fossil fuel finance restrictions deliver meaningful environmental gains only where the financial system can redirect capital toward renewable energy investment.