Illuminating the impact of economic policy uncertainty, renewable energy, and economic growth on environmental sustainability

Abstract

Global policies projected a temperature increase of 2.8 °C, surpassing the 1.5 °C target, which threatens environmental quality, largely driven by economic activities, economic policy uncertainties, renewable energy consumption, and urbanization. This study investigates the data from 12 countries (Australia, Brazil, Canada, France, Germany, India, Italy, Republic Korea, Mexico, Russia, United Kingdom and United States of America) spanning from 1997 to 2022. The aim is to assess the role of stated factors, test the EKC hypothesis, and provide insights into economic policy uncertainty on sustainability. To ensure robust results, advanced methodologies such as panel unit root tests, cross-sectional dependence, co-integration analysis and slope homogeneity are employed. The study also estimates the Driscoll–Kraay standard errors, panel corrected standard errors (PCSE), and feasible generalized least squares (FGLS), and uses the Dumitrescu–Hurlin panel Granger causality test. The findings show that GDP growth initially increases CO₂ emissions but later leads to a reduction, supporting the EKC hypothesis. Urbanization is positively linked to environmental quality, while renewable energy consumption significantly lowers CO₂ emissions. EPU exacerbates environment degradation, contributing to higher CO₂ emissions. Causality tests reveal that CO₂ emissions bidirectional Granger causes GDP, EPU, REN, and URB, while GDP unidirectional Granger causes EPU. The study emphasizes the importance of international collaboration, knowledge sharing, policy harmonization, and infrastructure integration to enhance emission reduction efforts to foster sustainable progress.