Investigating the impact of financial development on carbon emissions: Does the use of renewable energy and green technology really contribute to achieving low-carbon economies?

Abstract

Global warming has become one of the most serious and hotly debated global issue in recent years, despite increasing international agreements requiring urgent action. Therefore, many countries are striving to achieve carbon neutrality. To achieve decarbonization, renewable energy and green technologies can play a significant role. Thus, it is worth noting the connection between renewable energy consumption, green technology, and carbon emissions. We explore the effects of financial development (FD), renewable energy consumption, and green technology on carbon emissions (CE) in seven emerging countries between 1990 and 2020. To assess the empirical data, a wide range of econometric techniques from second-generation were employed, including cross-sectional dependence test, heterogeneity test, Westerlund cointegration test, augmented mean group (AMG) heterogeneous panel estimator, and Panel Granger causality test. The empirical findings revealed that FD increases the level of CE, which results in environmental degradation. In contrast, renewable energy usage and green technology decline CE in the long-run. Furthermore, when combined with renewable energy, FD tends to be less detrimental to the environment. The findings also unveiled that FD improves environmental quality through the green technology channel. The findings of causality tests demonstrated that policies related to renewable energy and green technology will affect carbon emissions in one direction, but not in the other. Our outcomes have significant implications. Our recommendation is to promote green technology and renewable energy usage, especially in emerging economies. By doing so, we will be able to attain the sustainable development goals.