Do Fossil Fuel Consumption, Eco‐Friendly Technology and Financial Development Have an Impact on Environmental Quality Under the <scp>LCC</scp> Hypothesis? Evidence From E‐7 Countries

ABSTRACT This study aims to test the long‐run and short‐run impact of fossil fuel consumption (FC), environmentally friendly technology (EFT) and financial development (FD) in E7 countries within the framework of the Load Capacity Curve (LCC) hypothesis. In line with this objective, this effect is tested using the CS‐ARDL procedure for the period 1985–2019. Moreover, the Emirmahmutoğlu and Köse panel causality test is utilised to test the causal link between the variables. CS‐ARDL findings show that the LCC hypothesis is not valid and that FC deteriorates environmental quality in E7 countries. Moreover, the findings reveal that FD and EFT improve environmental quality by increasing the load capacity factor (LCF). Causality findings show that there is a bidirectional causal link between LCF and the related independent variables. Based on the empirical findings, a series of policy recommendations are presented. Accordingly, E7 countries should increase the use of renewable energy, transition to a green and circular economy and promote EFT to realise sustainable development (SD).