Role of trade openness, export diversification, and renewable electricity output in realizing carbon neutrality dream of China

Abstract

Since climate change mitigation is the central debate of modern literature, the realization of carbon neutrality in response to diversified macroeconomic variables is the most crucial concern of international economies. However, the critical role of trade and renewable electricity output in export diversification-environmental nexus is missing. Therefore, this study investigates the combined influence of trade openness, exports diversification, and renewable electricity output on carbon dioxide emissions (CO2) in China from 1989 through 2019. Applying novel time series econometric techniques robust to structural breaks, following new outcomes are obtained. Firstly, long-run equilibrium cointegration existed among the under-analysis variables. Secondly, export diversification and renewable electricity output are predicted to decelerate CO2, supporting carbon neutrality in the long run. Thirdly, trade openness and gross domestic product accelerated the CO2, delaying carbon neutrality accomplishment. Most importantly, significant structural break dummy interacting with trade openness implicated that during the post-2001 era, China's trade openness extensively deteriorated the environmental quality in the face of trade liberalization obtained after joining the World Trade Organization (WTO). Based on empirical results, export diversification and renewable electricity production policies should be mutually non-exclusive and closely coordinated. Further, to counter the carbon emission acceleration impact of trade openness, increasing the share of green tradable products is suggested. Finally, bilateral trade restructuring is recommended to realize the long-term dream of economic sustainability and carbon neutrality.