The dynamic impact of renewable energy consumption, trade, and financial development on carbon emissions in low‑, middle‑, and high‑income countries

The dynamic impact of renewable energy consumption, trade, and financial development on carbon emissions in low‑, middle‑, and high‑income countries

The present study confronts potential theoretical argument of dynamic and non-linear relationship between CO2 emissions, renewable energy consumption, trade, and financial development by using quantile regression that accounts for the role of development in explaining the stated nexus. The results show that renewable energy consumption reduces CO2 emissions in the short run in low-, middle-, and high-income countries. CO2 emissions plumet as country open up for trade and expand financial services for their people. It is found that trade openness and financial development decrease CO2 emissions at upper quantile in low-income countries. In the middle-income countries, the findings are not much different as reported in case of low-income countries. In the high-income countries, renewable energy consumption and trade openness lead to decrease in CO2 emissions at all income quantiles. The Dumitrescu-Hurlin (D-H) panel causality test draws a sturdy support of bi-directional causation between renewable energy and CO2 emissions in low-income countries. Based on this analysis, some important policy implications can be drawn. First, in advanced countries, restrictions on renewable energy do not have significant effect on environmental condition. However, in low-income countries, adoption of renewable energy can significantly reduce CO2 emissions. Second, low-income countries may combat rise in CO2 emissions by introducing new technologies in exploiting trade potentials that are necessary to acquire resources to adopt clean energy. Third, energy policies should be framed based on the stage of development of a country, share of renewable energy in its total energy mix, and environmental condition of the country.

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