How does fiscal decentralisation affect carbon footprints? The role of renewable energy intensity: Evidence from the top 10 highly decentralised OECD countries

This study investigates the dynamic relationship between fiscal decentralization (FD), renewable energy intensity (REI), and carbon footprints (CFs) in the ten most highly decentralized OECD countries. Employing the cross-sectional autoregressive distributed lag (CS-ARDL) bound test, the analysis captures both short- and long-term effects of FD and its key determinants. Additionally, the Dumitrescu–Hurlin causality test examines the directional causal relationships among these variables. The findings indicate that FD serves as an effective mechanism for mitigating CFs by enhancing environmental quality. Consequently, local governments in highly decentralized regions should prioritize adopting renewable energy sources. Furthermore, carbon reduction initiatives contribute to energy efficiency and emission reduction targets. A statistically significant negative interaction between REI and CFs suggests that countries with high FD but low REI do not achieve substantial environmental benefits. The Dumitrescu–Hurlin causality test reveals a unidirectional causal relationship from revenue decentralization (REVD), expenditure decentralization (EXPD), composite fiscal decentralization (CFD), REI, gross domestic product (GDP), population size, and environment-friendly technological innovation (EnFTI) to CFs. Despite its contributions, this study has certain limitations. The analysis is restricted to highly decentralized OECD countries, which limits the generalizability of the findings. Additionally, while the CS-ARDL model captures short- and long-term dynamics, it does not account for potential spatial dependencies that may influence environmental outcomes. Future research could incorporate spatial econometric techniques or case-specific studies to enhance robustness.