How do inflation rate and energy alternatives influence environmental quality? A BRICS analysis

Abstract

In the recent decade, the topic of environmental sustainability and its determinants has gained the attention of environmental policy analysts and academicians. However, some crucial factors that can affect environmental sustainability have not yet been explored in the literature. In this essence, the current study aims to investigate the mediating impact of energy alternatives on the liaison between inflation rate and environmental quality. The empirical analysis was conducted on 24-years data of BRICS countries ranging from 1997 to 2020. The study employed the DOLS and FMOLS estimation models to run the regression among variables and check the robustness by employing ARDL model. The empirical results first reveal the negative significant effect of the inflation rate on CO2 emissions. In the second channel, the inflation rate has an inverse impact on fossil fuel energy while a direct impact on consumption of renewable energy. Third, fossil fuel energy consumption positively determines the CO2 emissions while renewable energy consumption shows a declining trend with CO2 emissions. Lastly, the empirical analysis confirms the mediating impact of energy alternatives in the nexus between inflation rate and environmental quality. In view of results, the policymakers are directed to utilize the inflation rate and energy alternatives as policy tools for managing the environmental quality. This study implies the innovative intuitions regarding the role of energy alternatives and inflation rate in pollution mitigation.