Energy transition, innovation, and foreign investment effects on CO ₂ emissions in Belgium: Evidence from an ARDL approach

Motivation The growing tension between economic growth and environmental sustainability has heightened the need to understand the drivers of CO 2 emissions, particularly in advanced, innovation-driven economies such as Belgium. Despite progress in renewable energy adoption and technological development, the extent to which these factors offset the environmental pressures of growth and globalization remains unclear. Objective This study examines the dynamic relationship between CO 2 emissions, economic growth (EG), foreign direct investment (FDI), innovation (INN), and renewable energy (REN) consumption in Belgium, to identify the key determinants of environmental degradation and assess the extent of decoupling between economic activity and emissions. Data and Method Using annual time-series data for the period 1990–2024, the study employs a log-linear econometric framework. Long-run relationships are estimated using baseline cointegration techniques. At the same time, dynamic ordinary least squares (DOLS) is applied as a robustness check to address endogeneity and serial correlation and to obtain reliable long-run elasticities. Results The findings reveal that EG has a positive and statistically significant impact on CO 2 emissions, confirming the persistence of the scale effect. FDI exhibits a positive, but statistically weak and conditional, influence, suggesting that its environmental impact depends on the nature of the investment. In contrast, INN and REN consumption both demonstrate significant negative effects on emissions, highlighting their crucial role in improving environmental quality. Overall, the results indicate that Belgium is experiencing relative decoupling, where technological progress and energy transition partially offset the environmental impact of economic expansion, but are not yet sufficient to achieve absolute emission reductions. Implications These findings suggest that strengthening INN capacity and accelerating REN adoption are essential for achieving sustainable growth. Policymakers should also promote environmentally friendly FDI and strengthen regulatory frameworks to ensure that foreign investment contributes to green transformation. The study provides important policy insights for balancing economic development with environmental sustainability in advanced economies.