Public spending on Energy innovations and CO2 impacts: Evidence from selected OECD countries

The relationship between public spending on Energy innovations (R&D of renewable and non-renewable energy, and energy efficiency) and CO2 intensity at constant purchasing power are investigated in this study. A Panel-NARDL model was used for the first time in 10 OECD countries (1990- 2020) to evaluate the asymmetric relationship between energy innovative variables and CO2 impacts in the long and short run. In other words, this study aims to monitor how changes in public spending on R&D for renewable and non-renewable influence CO2 emissions. The results show that while an increase in the public budget for R&D of renewable energy will decrease the CO2 intensity in the long run, a positive relationship exists between these variables in the short run. Likewise, the result demonstrates that a cut in public spending on Fossil fuel R&D leads to an increase in the short horizon and a decrease in the long-run CO2 emissions per unit of GDP. The finding implies the substantial impact of R&D in both renewable and non-renewable energy on reducing CO2 emissions over time. In addition, CO2 emissions per unit of GDP respond positively to R&D public spending on energy efficiency. An increase in public expenditure on R&D of energy efficiency can induce economic activity and enhance CO2 emissions. All in all, the 30 years’ analysis of data from the selected OECD countries substantiates the right strategy of reducing the CO2 emissions of these countries by applying the public budget to promote R&D in energy sectors. This study results in contrast with those studies that found no relationship between R&D on renewable energy and CO2 impacts. Significance Statement This paper evaluated the asymmetric impacts of public spending on R&D of renewable energy and fossil fuel, and energy efficiency on CO2 intensity at constant purchasing power. Although a growing body of research has analyzed the impact of R&D on CO2 emission, research on the asymmetric effects of R&D public expenditure in energy sectors on CO2 emission is still narrow. Moreover, by employing Panel Nonlinear ARDL, we delve into the spillover impacts of selected OECD public budget on R&D over the short and long horizons. In addition, we estimate the impacts of both Renewable and non-renewable R&D budgets which help us to explore and compare the effectiveness of budget allocation on R&D with the strategy of reducing CO2 emission. Finally, this study found how the R&D and technology budget surging and declining in energy sectors would influence CO2 emission per unit of GDP. • The PNARDL technique confirms the impacts of public spending on energy innovation on CO2. • The result indicates the correlation between RDR and RDF, and CO2 intensity in long and short horizons. • A cut in public spending on RDF leads to an increase in CO2 emissions per unit of GDP in the short run. • An increase in RDE can induce economic activity and enhance CO2 emissions per unit of GDP.