The influence of industrial expansion on carbon dioxide emissions in China: The interplay of financial development and renewable energy

Abstract

Industrial expansion in China often results in heightened carbon dioxide (CO₂) emissions due to manufacturing processes' energy-intensive nature. Nevertheless, embracing clean technologies driven by renewable energy sources offers a means to counteract these emissions. Through diminishing dependence on carbon-intensive energy sources, such as coal, renewable energy provides a hopeful avenue for alleviating the environmental repercussions of industrial operations. The study examines how industrial growth, the financial development index and renewable energy affect CO₂ emissions in China from 1980 to 2021, using the linear Autoregressive Distributed Lag (ARDL) approach. It also includes economic growth and non-renewable energy as explanatory variables. The variables are found to be integrated of order one, and the Fisher-statistic test indicates a long-run relationship between them. The long-run analysis shows that economic growth, renewable energy, and financial development help reduce CO₂ emissions, while non-renewable energy and industrial value-added increase them. The effect of the interaction between renewable energies and financial development contributes to emission reduction. This means that the Chinese government is pursuing a financial policy that is synchronized with the use of renewable energies and the promotion of clean technologies.