Reduction of CO2 emissions: The role of renewable energy, technological innovation and export quality

Abstract

In the 22 well-developed countries of the world, the level of CO2 emissions has been reducing over the years despite positive economic growth. This study therefore attempts to explore the role of contributory factors for CO2 emissions reduction in these countries. Selecting the data period of 1990–2018, our chosen independent variables are gross domestic product (GDP), square of the gross domestic product (GDP2), renewable energy, technological innovation and export quality. Adopting a panel non-linear autoregressive distributed lag (NARDL) approach, a pooled mean group (PMG) estimation technique is used to explore the asymmetric linkages between CO2 emissions and these independent variables. The panel heterogeneous causality test is used to examine the direction of causality. The estimated results have confirmed the existence of environmental Kuznets curve (EKC) hypothesis; and renewable energy and export quality are found as contributory factors for the reduction of CO2 emissions. Positive stimuli of technological innovation measured by research and development expenditure and export quality index reduce, whereas the negative shocks or counter incentives of these variables increase CO2 emissions. In regards to causal relationship, bidirectional causality is found between renewable energy and CO2 emissions, technological innovation and CO2 emissions, GDP and renewable energy, and renewable energy and technological innovation. In addition, a unidirectional causality is also revealed from GDP to CO2 emissions, export quality and technological innovation, and from technological innovation to export quality. Policy recommendations are made following the findings.