The significance of climate policy stringency, environmental taxation, and public debt in addressing climate change challenges

This study aims to explore the role of the three types of climate policies (sectoral, cross-sectoral, and international), public debt, and environmental taxation in reducing the greenhouse gases emissions in selected OECD countries between 1995 and 2023. The significance of the study stands in demonstrating the different effects of various instruments in mitigating the climate change. The methodological framework includes fully modified and dynamic OLS models (FMOLS-DOLS) and confirms the robustness of the findings using Driscoll-Kraay estimation regression and Lewbel two-stages least square estimator. In the context of SDG-13, the main results attest the significant influence environmental policy stringency have for mitigating climate change and argues for the usefulness of environmental fiscal instruments. Additionally, the results highlight a marginal effectiveness of public spending for environmental purposes and controls the whole picture by confirming the damaging role of economic growth and urbanization. Furthermore, the research offers novel insights into the environmentally harmful effects of public debt. Based on these original results, the policy recommendations lean towards stricter environmental regulations and carbon fees that can ultimately finance climate actions without affecting public debt, which is also seen as harmful for effectively mitigating environmental issues.