Exploring the effects of climate-related financial policies on carbon emissions in G20 countries: a panel quantile regression approach

Paola D’Orazio,Maximilian W Dirks

doi:10.1007/s11356-021-15655-y

Paola D’Orazio, Maximilian W Dirks

Open Access

https://doi.org/10.1007/s11356-021-15655-y

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Abstract

This paper studies the effects of financial development, economic growth, and climate-related financial policies on carbon emissions for G20 countries. The focus is particularly on financial policies implemented to scale up green finance and address climate-related financial risks from 2000 to 2017 and represent this paper’s value added. The empirical results obtained by relying on the panel quantile regression approach indicate that the impacts of the different explanatory variables on carbon emission are heterogeneous. Specifically, the effect of the stock of short-term financial policies on carbon emissions is negative, and its effect becomes smaller at higher quantiles. The stock of long-term policies also shows significant negative coefficients, but its impact is stronger for higher quantiles. No significance is reported for the lowest quantile. Financial development contributes to improving environmental quality, and its impact is larger in higher emission countries. Energy consumption increases carbon emissions, with the strongest effects occurring at higher quantiles. Our results also support the validity of the EKC relationship and positive effects of GDP and population on high carbon emissions levels. Estimation results are robust to alternative model specifications and after controlling for the role played by adopting international climate change mitigation policies as proxied by the adoption of the Kyoto Protocol.

Highlights

Global warming has become one of the most severe and pressing issues because of the devastating consequences of environmental degradation on humanity and economic systems globally
Observing the different timing of the policies reflected in the long-term and short-term stocks, we find that the impact of long-term financial policies on CO2 emissions is significantly negative in all quantiles, while different effects are observed for short-term policies
This paper aimed to study the effects of financial and economic development, energy consumption, and climate-related financial policies on CO2 emissions in G20 countries

Summary

Introduction

Global warming has become one of the most severe and pressing issues because of the devastating consequences of environmental degradation on humanity and economic systems globally. The special report of the Intergovernmental Panel on Climate Change (IPCC 2018) on the global temperature goals shows that the gap between current trends and emission reduction targets set by countries through their nationally determined contributions (NDCs) is widening and leading to somewhere between 3 and 4 °C of warming (den Elzen et al 2019). This scenario is consistent with what has been defined as a “Hothouse Earth” pathway (Steffen et al 2018). According to Le Qúeŕe et al (2019), to limit global warming to below 2 °C by the year 2100, greenhouse gas emissions would have to decrease by one to two billion tons every year

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