Role of financial stability, environmental regulations and uncertain economic policies in CO2 emission and investment in renewable energy: Evidence from China

Abstract

Carbon emissions, ecological pollution and a steadily rising global temperature have been widely acknowledged as the most severe risks to human survival in the last few decades. Alarming increases in global temperature and sudden climatic shifts are nature's way of warning us to curb the use of fossil fuels and adopt more sustainable practices. Therefore, the present study investigates the impact of financial stability, environmental regulations and uncertain economic policies on carbon emissions and investment in renewable energy. The study used a nonparametric DEA-DDF technique to fulfil this objective using a balanced panel dataset comprising 28 Chinese provinces from 2011 to 2021. Overall results demonstrated that financial stability reduces carbon emissions and accelerates investment in renewable energy projects. The findings imply that a financially stable economy like China encourages businesses to invest in cutting-edge, environmentally friendly technology to boost productivity while reducing carbon emissions. Likewise, results show that stringent ecological regulations decrease carbon emissions and promote investment in renewable energy. Hence, stakeholders are keen to comply with environmental regulations in China to reduce carbon emissions by investing in renewable energy resources to avoid penalties. Finally, results suggest that uncertain economic policies increase carbon emissions and restrict access to credit from financial institutions for investment in renewable energy purposes in China. Findings imply that uncertainty in economic policies could lead to less environmentally friendly production practices that may increase carbon emissions and reduce the demand for renewable energy products.