Examining the heterogeneity of financial development in the energy-environment nexus in the era of climate change: Novel evidence around the world

Abstract

The role of renewable energy resources as the alternative solutions to fossil fuels and traditional energy resources is undeniable in the recent literature with their linkage to energy efficiency, crude oil prices, and economic growth. However, the linkages between renewable energy consumption, energy efficiency, and financial development (FD) are still limited to both the scope and scale in previous studies, particularly through its heterogeneous functionality worldwide. Most previous studies focus mainly on the relation between the use of renewable energy resources and economic growth for specific countries, or groups of countries in a particular region. Motived by those research gaps, the paper sheds light on the strand of the literature by examining the nexus among renewable energy consumption, energy efficiency, and FD in mitigating the climate change risk using a novel panel data of 180 countries worldwide over the last three decades. Validated by a set of econometric approaches, the study first presents the nexus between renewable energy consumption, energy efficiency, and FD in mitigating carbon risk around the world. Second, the energy-environment nexus is strongly presented when we test for the multidimensional functionality with several sub-proxies of FD across the globe. Given the heterogeneous impacts of FD on the energy-environment nexus, the study provides critical policy implications to policymakers, researchers, and scholars worldwide in providing a thorough investigation of the trajectories among sustainable energy transition, environment, and green growth with the uneven effects of FD including markets (FM) and institutions (FI) with their efficiency, accessibility, and depth in the era of climate change toward the 2030 Agenda for Sustainable Development by the United Nations.