Synergy for climate actions in G7 countries: Unraveling the role of environmental policy stringency between technological innovation and CO2 emission interplay with DOLS, FMOLS and MMQR approaches

Abstract

The significant and indestructible repercussions of global warming have an enormous effect on economies worldwide. Inevitably the preservation of the environment remains a crucial element in the pursuit of sustainable development goals. The primary aim of this study is to assess the moderating effect of environmental policy stringency (EPS) between technological innovation (INV) and CO2 emission and direct association between financial development (FD), and financial globalization (FG) and environmental quality among the G7 countries. This analysis is conducted using a dataset covering the time period from 1990 to 2020, employing the Dynamic Ordinary least Square (DOLS), Fully Modified Ordinary Least Square (FMOLS), Canonical Cointegration Regression (CCR), and Method of Moment Quantile Regression (MMQR) estimation approaches. The results of DOLS, FMOLS, & CCR indicates that INV*EPS increase environmental quality by −0.21168, −0.21257 and −0.21255, respectively. Further, the outcomes of MMQR demonstrate that combine effect of INV & EPS contributes −0.2003 to −0.2264 across all quantiles from 20th to 80th. This indicates that technological innovation leads to enhanced environmental quality by mitigating CO2 emissions and implementation of more stringent environmental rules enhance the positive effects of green technologies by employing eco-friendly technologies to achieve carbon neutrality target. In order to effectively attain sustainable development goals, the study suggests that in economies that exhibit a higher degree of innovation, strong financial system, the adoption and implementation of environmentally sustainable technologies have a significant influence on the mitigation of CO2 emissions and the enhancement of environmental conditions. The study findings suggest few polices to policymakers: enhancing the green finance structure and strengthening the design of environmental regulations to promote green innovation. Research and development (R&D) activities have the potential to significantly contribute to the reduction of CO2 emissions through the effective application of scale effects and the implementation of efficient marketing tactics.