The mitigation of climate change is essential for sustainable development, and the transition to renewable energy plays a vital role in this process. Policies aimed at promoting the adoption of renewable energy could enhance sustainable development. This study measures sustainable development by using green total factor productivity (GTFP), which captures the capacity to foster economic growth while minimizing resource consumption and reducing pollution and carbon emissions. Using the slacks-based measure (SBM) and global Malmquist-Luenberger (GML) index, we calculate the GTFP index of 281 Chinese prefectures from 2012 to 2022 based on data from the China City Statistical Yearbook. An increase in GTFP indicates higher output with lower emissions from finite resources, thereby signifying the improvement in sustainable development. By conducting a difference-in-differences (DID) design, we investigate the effects of China's Plan on Clean Energy Accommodation (2018–2020) (PCEA) on sustainable development. Our DID estimates show that the PCEA hinders sustainable development. A series of robustness checks reinforce our main findings. Technological progress is the foundation and driving force of sustainable development. Local governments have to invest in infrastructures to promote renewable energy transition, which may crowd out their expenditure on research and innovation and temporarily impede technological progress. However, the shift toward renewable energy contributes to a cleaner energy structure and reduces carbon intensity. Our heterogeneity analyses reveal that southern cities, resource-based cities, and cities with lower stock of human capital are more vulnerable to energy transition, providing valuable implications for regional sustainable development.