The effects of green innovation, environmental taxes, and financial development on renewable energy consumption in OECD countries

Abstract

Environmental taxes are the major driving force for sustainable energy and the environment as a public policy tool. In this context, insight and evidence for the effects of environmental taxes on renewable energy consumption are important. This study investigates the potential effects of environmental taxes, economic growth, financial development, and green innovation in the top 10 renewable energy-consumed OECD countries in 1994–2019 with panel ARDL and NARDL methods. Regarding panel ARDL results, environmental tax encourages renewable energy consumption in the long run. Furthermore, the non-linear panel ARDL results indicate that negative shocks in environmental taxes affect renewable energy consumption significantly in the long run. Also, in the symmetric model, while financial development, green innovation, and environmental taxes increase renewable energy consumption in the long run, economic growth does not significantly influence it. On the other hand, in the asymmetric model, while economic growth and green innovation decrease renewable energy consumption in the long run, financial development increases it. The study provides significant guidance to policymakers by demonstrating that environmental taxes are an effective policy instrument to help achieve environmental sustainability goals. However, more evidence is needed to clarify the asymmetric effects of environmental taxes.