Effect of Environmental Taxes, Technological Innovation, and Green Energy on Environmental Degradation in G7 Countries: Insights from CS-ARDL and DCCE Model

Abstract

This study investigates the influence of environmental taxes, technological innovation and green energy on the environmental degradation across G7 countries, between 2001 and 2023. For data analysis, the study utilized different econometric techniques including cross-sectional dependence, heterogeneity test, CIPS and CADF tests, the Westerlund test of cointegration, CS-ARDL model and DCCE model for robustness estimation. The findings show that environmental taxes, technological innovation and green energy are negatively and significantly linked to the CO2 emissions both in the short-run and in the long-run in G7 economies. Additionally, the study found a positive relationship between GDP and CO2 emissions, and a negative association between GDP2 and CO2 emissions thus validating the EKC hypothesis in G7 economies. The causality analysis shows that environmental taxes, technological innovation and CO2 emissions have a one-way causality whereas renewable energy and CO2 emissions have a two-way causality, which shows the interactivity of the clean energy transition. The results imply the need to incorporate fiscal instruments, technological advancement, and renewable energy plans to promote sustainable growth and climate goals in G7 economies.