Is Green Transition in Europe Fostered by Energy and Environmental Efficiency Feedback Loops? The Role of Eco-Innovation, Renewable Energy and Green Taxation

Green transition is in the core of the European policy agenda to achieve the ambitious goal of climate neutrality following the launch of the European Green Deal. The cornerstone of the new growth strategy of Europe is resource efficiency which focuses on shifting to a more sustainable production paradigm by conserving scarce resources and by prioritizing enhanced environmental performance. Scattered efforts to investigate the drivers of resource efficiency measures have shed light on the key drivers, however, those consider resource efficiency measures in isolation neglecting for feedback loops influencing green transition. Therefore, we develop a conceptual framework to study green transition as a system of resource efficiency measures affected by feedback loops, path dependence, green technologies, and green policy tools. We mobilize the analysis by devising a unique balanced panel covering the EU-28 from 2010 through 2019, including policy efforts paving the way for green transition. Econometric results based on a system of fractional probit models, indicate that resource efficiency measures are intertwined via feedback loops, especially in the case of environmental efficiency. Green technologies affect green transition, however, rebound effects emerge in the case of energy efficiency. Past performance affects current levels pushing towards divergence. Evidence suggests that green taxation fosters energy efficiency whereas hinders environmental efficiency. The asymmetric operation of feedback loops and green taxation on energy and environmental efficiency highlights that horizontal policies hinder rather than foster green transition. This study contributes to SDGs 7, 12, 13 and 16.