Aligning economic pathways with a 2°C climate target implies rapid decarbonisation and a substantial increase in renewable energy (RE) investment and deployment. The financial system plays a key role in mobilising these investments. To support these efforts and address related climate risks, financial regulators and central banks increasingly adopted green financial and monetary policies (GFMP). However, empirical evidence on the effects of GFMP on the low-carbon energy transition remains scarce. This paper sheds light on the impacts of GFMP on RE capacity, a measure of RE investment and key transition indicator. I construct a country-level GFMP index capturing the flow and stock of policy intensity and mix across 26 countries for the years 2000 to 2023. Leveraging this index, I deploy two-way fixed effects and quantile panel regressions to quantify aggregate, policy type-specific, and heterogeneous conditional effects. Results show a positive relationship between GFMP intensity and RE capacity. On average, each adopted GFMP is associated with an addition of 0.016 gigawatt RE capacity per million capita, corresponding to 4.8Mt CO2 emissions avoided when displacing fossil energy sources. Distinguishing by policy type, I find incentive-based instruments are about twice as effective as informational instruments. Both the adoption of GFMP and the size of effect shows heterogeneity. This study provides an early empirical quantification of the impact of GFMP on the energy transition, and presents an index that can inform future research. Findings hold important policy implications on the green transition.
