Renewable Investments, Environmental Spending, and Emissions in Eastern Europe: A Spatial-Econometric Analysis of Policy Efficiency

The transition to a low-carbon economy is a key challenge for Eastern Europe, where economic growth, energy investments, and emissions reduction policies interact in complex ways. This study employs a spatial-econometric approach to assess the effectiveness of renewable energy investments and government environmental spending in mitigating CO₂ emissions across the region. Using panel data and spatial Durbin models (SDM), we identify significant spillover effects in emissions reduction, revealing those environmental policies in one country influence neighboring regions. The results indicate that renewable investments have a positive but localized impact on emissions reduction, while government environmental expenditure exhibits diminishing returns beyond a threshold of 0.01 GDP. Threshold regression analysis confirms that excessive spending may lead to inefficiencies, reversing its expected benefits. Additionally, the stochastic frontier analysis (SFA) highlights disparities in energy efficiency, with some countries demonstrating stronger optimization strategies than others. These findings underscore the importance of policy coordination and targeted investment strategies to enhance the effectiveness of decarbonization efforts. Strengthening regional cooperation and optimizing environmental expenditure allocation can significantly improve sustainability outcomes in Eastern Europe.