Policy and Institutions for Environmental Sustainability and Green Growth: The Moderating Effect of Renewable Energy and CO2 Emissions

Abstract

Reducing environmental degradation due to the waste of natural resources and increasing global warming have been the main sustainable development goals for preserving biodiversity and ensuring sustainable growth established by the United Nations since 2015. Elucidating these goals requires effective and efficient environmental policies, substantial financial resources, and technological innovation to ensure an energy transition and reduce fossil fuel divestment and polluting technologies. In this context, this paper aims to examine the impact of environmental sustainability policy and institutions on green economic growth. Using a CS-ARDL panel model for a sample of 69 low-income countries in Africa, Asia, Europe, and North America over the period 2005-2020, we find that the effect of environmental sustainability policy and institutions on green GDP per capita is positive and statistically significant. The intensity of this effect is moderated by increases in renewable energy consumption and decreases in CO2 emissions. Furthermore, the subsample analysis indicates that the relationships between environmental sustainability policy and institutions and green growth remain positive for the four continents. In the long run, the intensity of this effect is stronger in Europe and Asia than in America and Africa. Moreover, these impacts are more effective as renewable energy increases and CO2 emissions decrease. It seems to be more important in Europe and Asia than in America and Africa. Overall, low-income countries should pay particular attention to policy and institutional index for environmental sustainability to promote green growth, taking into account the moderating effect of renewable energy consumption and CO2 emissions reduction.