Do environmental taxes act as an automatic stabilizer for the transition to renewable energy in newly industrialized countries?

Abstract The main motivation of this article is to contribute to filling the noticeable gap in the literature regarding the role of environmental tax on the transition to clean energy sources. Therefore, this study provides an opportunity for scientists and policymakers to assess the impact of environmental tight fiscal policies on renewable energy development. Given the relevance of this issue to the Sustainable Development Goals (SDGs 7, 12, 13, and 17), this study analyzes the relation between environmental tax and renewable energy in Newly Industrialized Countries (NICs) from 1998 to 2021. The estimation model includes economic growth, environmental degradation, agricultural value added and financial development as determinants of renewable energy in addition to the environmental tax. Methodologically, a comprehensive analysis is carried out by utilizing second-generation panel estimation methods. The empirical findings confirm that environmental taxes are an automatic stabilizer by causing a positive impact on the transition to renewable energy for the five NICs panel. Moreover, country-specific outputs of this paper indicate that environmental regulations are essential for the upgrading of renewable energy sources in Brazil, China and Türkiye. However, environmental taxes need to be revised as a regulatory instrument for sustainability in the Philippines and South Africa. Our findings suggest that, as a green fiscal policy instrument, taxes with a purpose of mitigating pollution can be operational in achieving sustainability in NICs. In order to achieve sustainability goals, countries and public authorities should ensure that the revenues collected from environmental taxes are used exclusively to fund renewable energy sources through legal regulations.