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Abstract
In recent years, the developed, emerging, and developing economies have prioritized environmental sustainability attainment. In an attempt to offer some potential policy choices towards the achievement of sustainable development, this paper shifts emphasis from the popularly discussed economic development and carbon emissions nexus. Instead, we examine the impact of the banking and financial system’s activities on carbon emissions for a sample of 45 countries. These are comprised of developed, emerging, and developing countries between 1990 and 2017. To fill the gap in the literature, the nexus is examined in seven different phases. This study exposes robust and reliable empirical results with the use of Feasible General Least Squares, random effects with regards to the Durbin–Wu–Hausman test, and Difference General Method of Moments panel data estimation models. Our findings indicate that the increase of domestic credit to the private sector and commercial bank lending consistently contributes towards aggravated carbon emissions in all economic types. Additionally, increased deposit rates in developing economies, increased lending rates in developed economies, and increased deposit rates in emerging economies contribute towards the overall reduction of carbon emissions. The decrease in lending to high GHG emitting members of the private sector by financial institutions in all economies is recommended based on the results of this study.
Highlights
The need to reduce carbon dioxide (CO2) emission is one of the world’s most pressing issues
The emerging and developed economies continually put great efforts towards curbing carbon emissions by the combustion industries [61], our results show that this reduction is not evident when considering the effect of domestic credit to the private sector (DCPS) and commercial bank lending (CBL) on combustion industry emissions
For the developing and emerging economies, a higher deposit rate contributes towards decreased carbon emissions, especially in total carbon emissions, emissions by the power industry, by buildings, transport, and other combustion industries
Summary
The need to reduce carbon dioxide (CO2) emission is one of the world’s most pressing issues. Climate change as a result of environmentally unsustainable practices remains the most urgent human development issue of our generation. Among the key drivers of climate change, the rise in Greenhouse gas (GHG) emissions—especially CO2—remains an obstinate obstacle to the achievement of true environmental sustainability. All economies are faced with the challenge of both satisfying the energy and economic needs of billions of people while simultaneously contributing to the global transition towards a green and low-carbon energy systems. This balance is difficult to strike, especially for developing and emerging economies, who aspire to achieve and surpass the levels of economic expansion seen in the developed economies
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