Financial development, renewable energy and CO2 emission in G7 countries: New evidence from non-linear and asymmetric analysis

Abstract

The G7 countries have not yet been able to make a discernible impact in achieving the Sustainable Development Goal (SDG) 13 and 7. This situation could be ascribed to the underlying financialization issue in these countries, along with the implementation issues with renewable energy generation. In the wake of these two scenarios, the G7 countries are struggling to reduce carbon emissions (CO2). Handling this issue might require a policy reorientation, which is what this study focuses on. More specifically, it analyzes the nonlinear and asymmetric effects of financial development and renewable energy generation on CO2 emissions. The study, which encompassed the 1986–2019 period, adopts non-linear Autoregressive distributed lag (NARDL) and two-stage least square (2SLS) techniques. An SDG-oriented policy framework has been recommended based on these study outcomes. While this policy framework is aimed at addressing the objectives of SDG 13 and 7, the framework is generalizable to other nations. The contribution of the present study is an emphasis on the environmental policy issues of the G7 countries, and the accompanying recommendation of this SDG-oriented policy framework.