Role of renewable energy and fiscal policy on trade adjusted carbon emissions: Evaluating the role of environmental policy stringency

Abstract

There are scant empirical studies investigating the impact of fiscal policy and environmental policy stringency on consumption-based carbon emissions, especially within the context of the BRICS countries. To fill the voids in prior studies, the current study evaluates the effect of fiscal policy and environmental stringent policy on consumption-based carbon emissions. The study also incorporates other drivers of fiscal consumption-based carbon emissions (CCO2) emissions, such as disintegrated energy and economic growth, using data from 1990 to 2019. Since second-generation econometric methodologies such as augmented mean group (AMG) and common correlated effect means group (CCEMG) were used in the empirical research, this work presents trustworthy and solid empirical evidence. The quantile regression performs better when dealing with unobserved heterogeneity for each cross-section. Quantile regression gives more consistent and trustworthy results than traditional econometric approaches because heterogeneity and non-normality are identified in the dataset. The results from these estimators show that economic growth, nonrenewable energy, and government expenditure intensify CCO2 emissions while taxation revenue, environmental policy stringency and renewable energy mitigate CCO2 emissions. Furthermore, the panel causality test results show that taxation revenue, government expenditure, environmental policy stringency, and renewable energy can predict CCO2 emissions. Policy recommendations are put forward based on these results.