Energy transition is one of the greatest challenges for sustainability. However, the overall composition of the world energy supply has not changed much since the late 1970s, with fossil fuels providing 81% of the world’s total primary energy supply. While political leaders increasingly call for proactive policies to innovate the energy sector in the face of climate change, governments around the world commit vastly different levels of budgets to energy R&D. This research examines the potential determinants of cross-national variations in government budget allocations for energy R&D with three perspectives. With the panel data analysis of OECD countries (1974–2012), we check the supply-side, demand-side, and institutional factors inducing government investment in R&D for energy in general as well as for renewable energy. Among the multitude of factors tested in our analysis, gross domestic R&D expenditure, refinery output, and the rightist orientation of the governing party show significantly positive influences on government R&D budgets for energy in general. However, refinery output shows the negative effect on government R&D budget for renewables. This contrasting finding about the impact of refinery output on government investment in energy R&D in general vs. renewable energy R&D suggests that policymakers and scholars need to better appreciate the complex roles of the oil sector in driving public R&D investment in energy. It also calls for more proactive renewable energy policy to make progress towards sustainable energy transition.
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