Decoupling of CO2 Emissions from Growth with Energy Transition and Eco-Innovations in OECD: Novel Fourier-CS-ARDL and Fourier-DH-Causality Analyses

Decoupling between CO2 emissions and economic growth is critical to reversing climate change. The OECD plays a crucial role in this regard, given its considerable share of global CO2 emissions and GDP. This study examines the decoupling performance and the roles of renewable energy transition, as well as specific eco-innovations on climate change mitigation and environmental technology development across the OECD economies. The preliminary tests on a large panel of OECD countries identify cross-sectional dependence, structural breaks and heterogeneity. For robustness, the study proposes Fourier-CS-ARDL, Fourier-AMG, and Fourier–Dumitrescu–Hurlin methods as generalizations of their linear counterparts. After identifying cointegration and its singularity with Fourier-bootstrapping bounds and Fourier–Johansen tests, the modeling stage suggested a positive, but significantly inelastic long- and short-run elasticity of emissions to economic growth. Most of these effects are reversed by renewable energy transition in the long run and partially reversed in the short run. These CO2 mitigation effects are also evident across different eco-innovations with varying temporal impacts. Novel Fourier causality tests identify feedback loops between CO2 and CO2-mitigating factors, as well as unidirectional causality from growth to all mitigating factors, confirming the indirect effect of growth on CO2 mitigation. Overall, these results clearly suggest “relative” decoupling in OECD accompanied by CO2e mitigation effects from eco-innovations and energy transition, and highlight the potential for green growth following the successful adaptation of energy transition and eco-innovations. Policymakers in OECD are encouraged to leverage the identified feedback mechanisms and establish international technology transfer policies to homogenously curb CO2 emissions.