Mitigating CO2 Emissions through Economic Growth, Green Finance, and Renewable Energy: Evidence from an ARDL Analysis

This study examines the intricate long-term relationships between global CO₂ emissions and three pivotal factors: global gross domestic product (GDP), green finance flows in developing economies, and global renewable energy consumption. The study spans data from 2000 to 2021, addressing critical questions on sustainability and economic growth amidst growing environmental concerns. This investigation is timely as it aligns with international efforts to mitigate climate change and transition towards greener economies. The primary objective of this research is to analyse the interplay between economic growth, financial mechanisms, and renewable energy in influencing global CO₂ emissions. It aims to provide empirical insights into their dynamics and offer policy recommendations for sustainable development. Using the Autoregressive Distributed Lag (ARDL) model, the study investigates long-run and short-run relationships among these variables. The approach ensures robust statistical modelling of the time-series data while considering the complexities of cross-country variations. The findings reveal a significant positive correlation between global GDP and CO₂ emissions, indicating that a 1% increase in global GDP leads to a 0.48% rise in emissions. Conversely, renewable energy consumption exhibits a substantial negative relationship, where a 1% increase reduces CO₂ emissions by 0.77%. Notably, green finance in developing countries shows a positive but statistically insignificant impact on emissions, highlighting gaps in its current implementation and effectiveness. This study contributes to the Environmental Kuznets Curve (EKC) hypothesis by illustrating that the current global economy has not reached a maturity level that fosters emission reductions alongside economic growth. It underscores the role of renewable energy and green finance in shaping sustainable economic paradigms. The research highlights policy imperatives, urging governments to: (1) scale up investments in renewable energy to combat climate change effectively; (2) enhance the efficiency and governance of green finance mechanisms in developing economies to ensure impactful emission reductions; and (3) align economic growth strategies with environmental sustainability goals.