The dynamic impact of renewable energy consumption, trade, and financial development on carbon emissions in low-, middle-, and high-income countries

Abstract

The present study confronts potential theoretical argument of dynamic and non-linear relationship between [Formula: see text] emissions, renewable energy consumption, trade, and financial development by using quantile regression that accounts for the role of development in explaining the stated nexus. The results show that renewable energy consumption reduces [Formula: see text] emissions in the short run in low-, middle-, and high-income countries. [Formula: see text] emissions plumet as country open up for trade and expand financial services for their people. It is found that trade openness and financial development decrease [Formula: see text] emissions at upper quantile in low-income countries. In the middle-income countries, the findings are not much different as reported in case of low-income countries. In the high-income countries, renewable energy consumption and trade openness lead to decrease in [Formula: see text] emissions at all income quantiles. The Dumitrescu-Hurlin (D-H) panel causality test draws a sturdy support of bi-directional causation between renewable energy and [Formula: see text] emissions in low-income countries. Based on this analysis, some important policy implications can be drawn. First, in advanced countries, restrictions on renewable energy do not have significant effect on environmental condition. However, in low-income countries, adoption of renewable energy can significantly reduce [Formula: see text] emissions. Second, low-income countries may combat rise in [Formula: see text] emissions by introducing new technologies in exploiting trade potentials that are necessary to acquire resources to adopt clean energy. Third, energy policies should be framed based on the stage of development of a country, share of renewable energy in its total energy mix, and environmental condition of the country.