The credibility of environmental policy stringency: Implications for sustainability in OECD Countries

Abstract

This study investigates the evolving interplay between environmental governance and sustainability outcomes, employing dose-response analysis to underscore the necessity of accounting for these interdependencies in formulating climate and emissions policies. Our empirical evidence indicates that regulatory measures are pivotal in advancing sustainability within OECD countries, though their effects differ across various dimensions. Notably, stringent environmental regulations initially exacerbate energy security vulnerabilities in nations below a specific threshold; however, once policy intensity surpasses the threshold, they contribute substantially to mitigating such risks. A comparable pattern emerges for renewable energy adoption, where enhanced policy rigor fosters greater consumption. Paradoxically, tighter regulations induce a marginal uptick in CO₂ emissions. Moreover, insights from a dynamic panel threshold framework reveal that foreign direct investment (FDI) conditions the efficacy of environmental policies. As FDI rises, the beneficial influence of regulatory stringency on energy security and renewable utilization strengthens. Nevertheless, when FDI remains below 2.0, stringent environmental policies tend to elevate CO₂ emissions, whereas, beyond this threshold, the relationship reverses, leading to emission reductions. These findings underscore the intricate, non-linear interactions between environmental policy and sustainability, highlighting the imperative for calibrated policy frameworks that acknowledge threshold effects.