The role of green finance, energy transition, and digitalization in OECD greenhouse gas emissions

Abstract

Sustainable development involves finding a balance between economic growth, environmental protection, and social responsibility. Successful energy transition, green finance and digitalization are important to achieve net-zero carbon emissions by 2050. This study examines the effect of key drivers of environmental sustainability on the greenhouse gas emissions of 31 OECD economies from 2000 to 2020. This study proposes a policy framework to advance SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action) in OECD economies and to fill a literature gap by providing empirical evidence on the combined effect of technological innovation (environmental patents), energy transition, and green finance in OECD economies. The study employed various empirical estimation techniques, including the Fully Modified Ordinary Least Squares, the Feasible Generalized Least Squares, Method of Moment Quantile Regression (MMQR), Quantile Regression, and Dumitrescu and Hurlin causality test. Our findings revealed that energy transition, digitalization, environmental patents, renewable energy, and green finance, help in reducing greenhouse gas emissions (GHGs) thus promoting environmental sustainability. Whereas economic growth, urbanization, and trade liberalization increase carbon emissions in the OECD economies. Moreover, the study also indicates the presence of bidirectional causality between these drivers. This study contributes to the existing literature by offering new empirical evidence on the interactions between green finance, energy transition, digitalization and GHG emissions in OECD countries.