Green finance and carbon emissions in the EU: moderating role of biofuels and technology

Abstract This study describes its objectives by leveraging the significance of the European Union (EU)’s 2050 long-term carbon neutrality strategy to examine the impact of green financing on carbon dioxide (CO 2 ) emissions. The experiments include models based on cointegrated relations, particularly unit root testing, panel cointegration testing, and fully modified ordinary least squares and dynamic ordinary least squares regressions, using EU countries’ panel data covering 2001 to 2019. We first analyze the impact of green finance on CO 2 emissions and find an insignificant relationship. When we incorporate biofuel consumption and technological progress, we observe a significant link between green finance and reduced carbon emissions. Our findings suggest that green finance becomes substantially effective in lowering emissions when focusing on the biofuel industry and the transition to low-carbon transportation. The findings provide relevant implications for the EU 2050 long-term strategy for reducing CO 2 emissions.