Natural resources extraction and COP26 target: Evaluating the role of green finance

Abstract

Efforts concerning environmental recovery are recently attracting scholars' and authorities' attention, particularly in emerging countries. Regarding the COP-26 target, China has increased its share of green finance and the extraction of natural resources during the last few decades. Such an increase in these fields motivates this study to examine the influence of green finance and natural resource extraction on China's carbon (CO2) emissions from 1989 to 2020. This study also considers the role of economic growth by estimating a linear model. This study uses time series fully modified ordinary least square canonical cointegration regression and dynamic ordinary least square. The estimated results asserted that economic growth, green finance, and natural resources are the significant drivers of environmental degradation. This study also estimated a non-linear model that included increased (squared) green finance and (squared) natural resource extraction. This time, the study provides evidence that increased green finance and natural resource extraction degrade CO2 emissions and improve environmental quality. The robustness of results is validated via robust least squares. Besides, the results indicate a bidirectional causal association between CO2 emissions, economic growth, natural resources, and green finance. This study suggests the sustainable extraction and consumption of natural resources and enhancement in green finance related instruments to attain the COP-26 target.