Fiscal Sustainability and Energy Transition in Advancing Long-Term Sustainable Development

Waseem Azam

doi:10.63335/j.hp.2026.0041

Highlights

Fiscal sustainability strengthens long-term sustainable development in OECD economies.
Energy transition quality enhances wealth accumulation and reduces structural risks.
Institutional governance amplifies fiscal and energy policy effectiveness.
Structural heterogeneity reveals diverse sustainability regimes across OECD countries.

Abstract

Achieving long-term sustainable development requires not only a transition toward cleaner energy systems but also supportive fiscal and institutional conditions that ensure the durability of such transitions. While existing studies largely focus on the environmental effects of renewable energy adoption, limited attention has been paid to how energy transitions interact with fiscal sustainability and governance to shape broader development outcomes. This study addresses this gap by examining the combined roles of renewable energy consumption, energy efficiency, fiscal conditions, and institutional quality in advancing sustainable development across OECD economies. Using a balanced panel of OECD countries from 1995 to 2023, the analysis employs adjusted net savings as a comprehensive indicator of long-term sustainability that captures changes in produced, natural, and human capital. The results indicate that renewable energy adoption is positively associated with long-term sustainable development, although the magnitude of this relationship depends on fiscal discipline and governance effectiveness. Stronger institutions enhance the sustainability benefits of renewable energy deployment. These findings suggest that energy transitions yield the greatest long-term benefits when embedded within sound fiscal frameworks, effective governance structures, and efficiency-enhancing policies. The study offers policy-relevant insights for advanced economies seeking to align climate objectives with fiscal sustainability and inclusive long-term development.

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