Capital Formation, Green Innovation, Renewable Energy Consumption and Environmental Quality: Do Environmental Regulations Matter?

Abstract

The world economy continues to witness a steady rise in carbon emissions, which makes it challenging to fulfill the terms of the Paris agreement on reducing greenhouse gas emissions. In this context, countries worldwide enact environmental regulations to curtail environmental pollution to promote sustainable development. However, the importance of environmental regulations has not been fully validated in the previous literature. In addition, the concurrent roles of capital formation, green innovation, and renewability cannot be overlooked. Against this backdrop, this study selects data from G7 countries from 1994 to 2019 to explore the effect of environmental regulations, capital formation, green innovation, and renewable energy consumption on CO2 emissions. In order to achieve the above research objectives, we employ the Method of Moments Quantile Regression (MM-QR) for empirical analysis. The results reveal that capital formation significantly enhances environmental quality by reducing CO2 emissions across all quantiles (10th–90th). Environmental regulations show a significant and negative impact on CO2 emission mainly at the middle and higher emissions quantiles, while the effect is insignificant at lower quantiles (10th). Moreover, green innovation and renewable energy consumption mitigate CO2 emissions across all quantiles (10th–90th), while economic growth deteriorates environmental quality in G7 countries. The panel granger causality results indicate the unidirectional causality running from capital formation, environmental regulations, and renewable energy towards CO2 emissions, which implies that any policy related to these variables will Granger cause CO2 emissions but not the other way round. Based on the findings, important policy implications are proposed to promote sustainable development in G7 countries.

Is a green world real or a dream? A look at green growth from green innovation and financial development: Evidence from fragile economies

“…This concept is also supported by the study's findings. These findings are consistent with those of the study by Meng et al (2022).…”

“…coal, oil and gas). Achieving sustainable development goals in this approach can be greatly aided by CAP and environmental regulation (Meng et al, 2022). It can be said that there is a direct correlation between capital and GRG because investments in low‐carbon and other environmentally friendly projects demand more technology and capital‐intensive growth.…”

Can business managerial capacity improve green innovation in different industries? Evidence from Chinese listed companies

“…In contrast, appropriate environmental regulation incentivizes technological innovation (Wu et al, 2020). Most studies focus on regulations and GI, within a country, such as China, or between economies (Meng et al, 2022; Nazir et al, 2023; Tang et al, 2020; Xu et al, 2022; Zhou et al, 2021). Command‐based environmental regulations may undermine firms' competitiveness in the long run, whereas market‐based policies have lasting incentive effects through price signals and voluntary instruments that guide production model transformation via enhancing environmental awareness (Xu & Cui, 2020).…”

“…In contrast, appropriate environmental regulation incentivizes technological innovation (Wu et al, 2020). Most studies focus on regulations and GI, within a country, such as China, or between economies (Meng et al, 2022;Nazir et al, 2023;Tang et al, 2020;Xu et al, 2022;Zhou et al, 2021) Cui, 2020). Market-based policies have been promoted in recent years.…”

Energy, Forests and Environmental Sustainability: A Comparative Analysis of Developed and Developing Economies

“…Kazen et al (2021) examined the inverted U-shaped impact of GFC on carbon emissions in G20 countries, whereas Hata et al (2022) disagreed and concluded that fixed capital formation, in terms of machinery and infrastructure, always increases pollution. Xueying et al (2022) and Quanliang et al (2023) concluded that the management of fixed-capital formation is essential to avoid pollution. In this study, environmental hazards stand as the dependent variable and are limited to greenhouse gas emissions, while forests, population, capital formation, and energy consumption serve as explanatory variables.…”