Abstract
The sustainability of economic growth has recently become a major objective for the global economy. Innovation is a newly emerged key factor for an efficient energy market and sustainable development. It can reduce pollution by increasing production efficiency (the first effect of CO2e reduction) and direct involvement in renewable energy development (the second effect of CO2e reduction) by replacing fossil fuel instruments with their counterparts that rely on renewable energy. The main question of this research is: Will the impact of innovation on per capita CO2e be the same on a threshold with different levels of renewable energy consumption? This paper explores the impact of innovation on CO2 emissions in a panel of 29 selected EU countries from 2000 to 2019 using the fixed-effect panel threshold model. The results indicated that innovation had a significantly negative effect on per capita CO2e. In the early levels of the use of renewable energy, innovations have been directed more towards clean energy (the second effect on CO2e). Innovations were directed more towards clean energy in using renewable energy at early levels. It can be concluded that this policy has led to more innovation in clean energy production and more use of renewable energy, thus reducing CO2e considerably (the second effect).
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