Comparative study of fintech's role in energy transition in developed vs developing economies

Chew, Yu Zhe (2025) Comparative study of fintech's role in energy transition in developed vs developing economies. Final Year Project, UTAR.

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Abstract

The transition from fossil fuels to renewable energy is critically hindered by substantial financial barriers, prompting a growing reliance on Financial Technology (FinTech) to bridge the global funding gap. However, the net environmental sustainability of FinTech remains disputed, as the operational efficiencies of digital finance are often counteracted by the significant energy consumption of underlying infrastructures such as blockchain and data centres. Addressing the limitations of existing scholarship that predominantly relies on mean-based econometric methods and generic proxies, this study investigates the heterogeneous impact of FinTech development on both fossil fuel and renewable energy consumption across 56 developed and developing economies from 2015 to 2024. Methodologically, the research employs Powell’s Panel Quantile Regression (PQR) to capture non-linear relationships and distributional effects that standard linear models overlook, while uniquely decomposing FinTech into two distinct dimensions: transaction frequency and transaction volume. The empirical results reveal a critical dichotomy: while higher transaction frequency fosters environmental sustainability through dematerialization, increased transaction volume exacerbates fossil fuel dependence via a distinct "rebound effect." Crucially, the study identifies a structural "Brown Bias" in developing economies, where unregulated digital capital flows disproportionately into established, carbon-intensive industries to fuel rapid industrialization, thereby crowding out renewable energy investments. Conversely, developed economies exhibit a decoupling of financial growth from environmental degradation, utilizing FinTech primarily as an optimization tool. These findings challenge the universality of the Sustainable Finance Theory, suggesting that digital finance is not inherently green but is conditional on economic development status. Consequently, the study rejects "one-size-fits-all" policy frameworks and recommends that developing nations implement specific Green Taxonomies and transparency mandates for digital lending to ensure financial inclusion effectively catalyses, rather than inhibits, the energy transition.

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