Exploring the Load Capacity Factor and Pollution Haven Hypothesis in India: Analyzing Energy Security Risk and Financial Development in an Asymmetric Framework

ABSTRACT Global warming has led to environmental degradation, which has turned into one of the most pressing challenges affecting practically all forms of life. Understanding the determinants of this problem is essential to formulate corrective policy measures. The existing literature has neglected the supply side dynamics, as the majority of prior research has concentrated on the demand side aspects of the problem of environmental degradation. To address this limitation, this study uses the load capacity factor, a novel, broader, and comprehensive indicator of environmental health that considers both demand as well as supply side concerns of environmental degradation. The primary goal of this study is to investigate the novel load capacity factor hypothesis along with the pollution haven hypothesis in the Indian context in the presence of energy security risk and financial development. The study utilized data from 1980 to 2021 and used a nonlinear auto regressive distributed lag model for analysis. The results validate the U‐shaped load capacity factor hypothesis, suggesting environmental quality deteriorates initially but improves as economic growth breaches a threshold level. The results further validate the pollution haven hypothesis in India, demonstrating that international investments in India have led to the creation of pollution havens and are flowing into energy intensive sectors. It is further revealed that energy security risk is jeopardizing environmental sustainability, as the country is vulnerable in terms of energy security, whereas financial development is enhancing the quality of the environment through the promotion of green energy initiatives. India needs to develop important policies pertaining to its economic activity and environmental preservation, both of which are included in the paper.