Achieving 1.5 °C and net-zero emissions target: The role of renewable energy and financial development

Abstract

Achieving net-zero carbon emissions is very important to many countries across the globe, especially in light of the Paris climate agreement. Hence, through the application of the augmented mean group (AMG) and common correlated effects mean group (CCEMG) estimators, this study investigates the role of renewable energy and financial development in the step towards mitigating CO2 emissions to achieve 1.5 °C and net-zero emissions goal. The annual data from 1990 to 2018 for 73 countries are divided into four (4) regions (Africa, Asia-Pacific, America, and Europe) of the world. The empirical findings show that renewable energy consumption reduces CO2 emissions, while fossil fuel energy consumption increases CO2 emissions across regions and at the global level. Financial development increases CO2 emissions in Africa, Asia-Pacific and at the global level but decreases CO2 emissions in America and Europe. Besides, an inverted U-shaped EKC is found across regions and at the global level. The Dumitrescu-Hurlin causality test revealed a bidirectional causal relationship between financial development and CO2 emissions at the global level and across regions. The study documented several policy recommendations.