The influence of effective capital, technological innovation and energy efficiency on environmental sustainability on the European region

Abstract

The trade-off between economic goods and environmental sustainability has increasingly become a cause of concern in the World. The trade-off between environmental sustainability and economic growth is explained by the excessive use of energy, especially fossil fuel that emits pollutants to the environment. To this end, the shift from fossil fuels to clean fuels has been recommended to eradicate environmental damage. This research acknowledges the complementarity of capital assets and energy resources (factors of production), as represented by the effective capital index. Thus, this research seek to investigate on how effective capital affecst the sustainability of the environment. The twenty-seven European Union nations are taken as the case, by considering their dataset from 1990 to 2019. The second-generation methods (Augmented Mean Group, Cross-sectionally Augmented Autoregressive Distributive Lag and Dynamic Common Correlated Effects Mean Group) are used for data analysis. Research findings depicts that effective capital is depreciating the environment with a magnitude of 1.17–3.08%. Energy efficiency and renewable energy are improving environmental sustainability by a magnitude of 0.3 and 0.1 units, respectively. These findings depicts that effective capital is deteriorating the environment because of the inclusion of fossil fuel, while the efficient use of energy and the use of clean fuels improves the quality of the environment. Major policies recommends embracing on effective capital that only includes renewable energy with the exclusion of non-renewable energy, which is detrimental to the environment. Accordingly, improving renewable energy development is recommended in order to shift to its use, from fossil fuels.