Emerging economies struggle to expand green energy despite rising investment

From a policy perspective, the research suggests that emerging economies face a strategic choice. They can continue to pursue growth through industrial expansion and conventional energy use, accepting slower progress on renewables, or they can invest in governance reforms that enable green energy to scale alongside development. The latter path requires political commitment, institutional capacity, and coordinated planning across energy, industry, and finance.

Renewable capacity has expanded worldwide, but the factors that determine whether countries actually increase the share of green energy in their overall consumption remain uneven and deeply political. In fast-growing economies, foreign investment and industrial expansion are often assumed to accelerate the energy transition. Evidence now indicates the opposite may be true, according to a new study published in Energies.

Titled “Determinants of Green Energy Penetration in N-11 Countries: A Machine Learning Analysis,” the research provides a long-run, data-driven assessment of what drives renewable energy penetration across the Next Eleven (N-11) economies between 2000 and 2022. Using advanced panel econometrics and causal machine learning methods, the study identifies which economic, institutional, and policy variables genuinely increase the share of green energy and which continue to anchor these countries to fossil fuel–heavy pathways.

Covering Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam, the analysis challenges widely held assumptions about the role of foreign capital and industrialization in the energy transition. It points to governance quality and green transition policies as the most reliable drivers of renewable energy penetration, while revealing structural contradictions in growth-led development models.

Governance and green transition policies drive renewable uptake

The study finds that institutional quality matters more than capital flows when it comes to expanding green energy use. Countries with stronger governance frameworks and more consistent green transition policies show significantly higher levels of renewable energy penetration over the long term. This relationship holds even after controlling for income growth, urbanization, and industrial activity.

The authors define green energy penetration as the share of renewable energy in total final energy consumption, rather than installed capacity alone. This distinction is crucial. Many N-11 countries have invested heavily in renewable projects while continuing to rely overwhelmingly on fossil fuels to meet rising energy demand. The study shows that governance quality helps determine whether renewables become a core part of the energy mix or remain marginal additions.

Governance quality captures regulatory effectiveness, institutional stability, and policy enforcement. Where these elements are stronger, renewable energy policies are more likely to translate into actual consumption shifts. Green transition indicators, which reflect national commitment to sustainability-oriented development, further reinforce this effect. Together, these variables consistently show positive and statistically significant impacts on green energy penetration across different model specifications.

By applying Partialing-Out LASSO regression and double machine learning techniques, the study isolates causal effects rather than simple correlations. SHAP-based interpretation confirms that governance and green transition variables rank among the most influential predictors of renewable energy penetration across countries and time periods.

This finding reframes the energy transition as a governance challenge rather than a purely technological one. Renewable energy adoption depends not just on access to technology or capital, but on the institutional capacity to steer energy systems away from carbon-intensive lock-in.

Foreign investment and industrial growth reinforce fossil dependence

The study highlights the consistently negative relationship between foreign direct investment and green energy penetration. Contrary to the expectation that foreign capital brings cleaner technology and modern energy infrastructure, the analysis shows that higher levels of FDI are associated with lower shares of renewable energy consumption in the N-11 countries.

The authors interpret this pattern as evidence that much of the foreign investment entering these economies remains concentrated in energy-intensive and carbon-heavy sectors. Manufacturing, construction, and extractive industries continue to attract the bulk of inflows, reinforcing demand for fossil fuels rather than accelerating a shift to renewables. In this context, FDI supports economic expansion without altering the underlying energy structure.

Industrial growth shows a similar effect. As industrial output increases, green energy penetration declines, reflecting the reliance of heavy industry on conventional energy sources. Even where renewable capacity expands, it often fails to keep pace with rapidly rising industrial energy demand, leading to a shrinking renewable share rather than absolute declines in renewable use.

These findings expose a structural tension within development strategies pursued by many emerging economies. Growth-driven industrialization raises energy demand faster than renewable systems can scale, especially in the absence of strong policy intervention. Without deliberate redirection, economic success can slow rather than accelerate the energy transition.

Urbanization also plays a complex role. While urban growth can support efficiency gains and modern energy infrastructure, the study finds that its effect on green energy penetration is inconsistent across countries. In some cases, urbanization aligns with cleaner energy use, while in others it amplifies electricity demand met primarily through fossil fuels. This variability reinforces the importance of country-specific governance and policy frameworks.

Policy implications for emerging economies and global climate goals

The Next Eleven economies represent a substantial share of future global energy demand growth. If their development pathways remain tied to fossil fuels, global decarbonization targets will become increasingly difficult to achieve.

By demonstrating that governance quality and green transition commitment outweigh financial inflows as drivers of renewable penetration, the research challenges prevailing development finance strategies. Attracting investment alone is not sufficient. Without regulatory alignment, environmental standards, and long-term policy consistency, capital tends to flow into sectors that perpetuate carbon dependence.

The negative association between FDI and green energy penetration also raises questions for international investors and development institutions. Climate-aligned finance requires more than labeling projects as sustainable. It demands systemic screening of investment portfolios to ensure they support structural energy transitions rather than incremental efficiency gains within fossil-based systems.

The study’s methodological approach adds weight to these conclusions. By combining second-generation panel econometrics with causal machine learning, the authors address issues of cross-country dependence, heterogeneity, and endogeneity that often weaken comparative energy studies. Robustness checks using instrumental variable techniques confirm the direction and stability of the core results.

From a policy perspective, the research suggests that emerging economies face a strategic choice. They can continue to pursue growth through industrial expansion and conventional energy use, accepting slower progress on renewables, or they can invest in governance reforms that enable green energy to scale alongside development. The latter path requires political commitment, institutional capacity, and coordinated planning across energy, industry, and finance.

The study also underscores that energy transitions are not automatic outcomes of economic modernization. Without deliberate intervention, market forces tend to reinforce existing energy structures. Renewable penetration increases only when supported by policy coherence, regulatory credibility, and long-term planning.