Article

The Impact of Renewable Energy Consumption, Economic Growth,

Globalization, and Financial Development on Carbon Dioxide
Emissions: Evidence from Selected G7 Economies
Agbortoko Agbortoko Egbe 1, Oluwatoyin Abidemi Somoye 2,* and Huseyin Ozdeser 2
1
Department of Business Administration, Near East University, Nicosia 99138, Cyprus; [email protected] (A.A.E.)
2
Department of Economics, Near East University, Nicosia 99138, Cyprus; [email protected] (H.O.)
* Corresponding author. E-mail: [email protected] (O.A.S.)
Received: 4 September 2024; Accepted: 18 November 2024; Available online: 21 November 2024

ABSTRACT: The aggregate upsurge in carbon dioxide emissions (CO2) witnessed through environmental degradation and global
climate change is a call for great concern. This, therefore, calls for the enactment, utilization and implementation of provisions and
policies geared towards curbing this global economic bad without impeding global economic growth rates. This study ascertains
the extent to which renewable energy consumption (REC), economic growth (GDP), population growth (POP), globalization (GLO),
and financial development (FD) affect carbon dioxide emissions (CO2) in selected G7 economies (France, Germany, Canada, Italy,
and the United Kingdom) from 1990–2020. The Dynamic Fixed Effect Autoregressive Distributive Lag (DFE-ARDL) and the
Pooled Mean Group ARDL (PMG-ARDL) methods were employed for analysis. The empirical findings for DFE-ARDL showed
that REC, GDP, and POP have an adverse association with CO2 in the long-term. However, in the short-term, REC and FD improve
the environment, while GDP and POP drive CO2. It is observed that the result for REC in the short and long-run is consistent. The
PMG-ARDL results revealed that REC and GLO negatively affect CO2 in the long-run, and in the short-run, GDP spurs CO2, while
FD reduces it. The result summary of both methods employed demonstrates that REC, GLO, and FD benefit the environment. At
the same time, GDP and POP harm the environment in the short-run but reduce CO2 in the long-run. Conclusively, the research
recommends increasing the utilization of renewable energy and policies that enable economic growth and CO2 to move in the
opposite direction.

Keywords: Renewable energy; GDP; Globalization; Financial development; DFE-ARDL; PMG-ARDL

© 2024 The authors. This is an open access article under the Creative Commons Attribution 4.0 International
License (https://creativecommons.org/licenses/by/4.0/).

1. Introduction
In recent times, environmental degradation has increasingly gained popularity around the world. This increase is
justified because conducive environmental conditions are fundamental for our livelihood. Further bolstering the
relevance of the subject matter is confirmed by global warming, evidenced by climatic irregularities such as the decrease
in snow level cover, rising temperatures, rising sea levels, droughts as well as the manifestation of storms [1]. The 2012
results published by the World Health Organization (WHO) estimated environmental pollution to be one of the world’s
greatest threats, given that its estimated causalities stood at about seven million [2]. The most significant of all aspects
responsible for this degradation is the release of carbon dioxide emissions (CO2) caused by human activities associated
with non-renewable energy sources like fossil fuels.
It is essential to state that various social, economic, political, and cultural factors could reduce or accelerate CO2.
Some studies that have covered this broad scale of factors include [3–6]. Specifically, these factors include renewable
energy consumption (REC), economic growth (GDP), population growth (POP), globalization (GLO), and financial
development (FD).
Renewable energy is viewed as an important alternative for lowering CO2 and improving environmental quality
[7]. Renewable energy resources, such as hydropower, solar, and wind, do not emit greenhouse gases, as opposed to
fossil fuels [8]. Therefore, expanding the use of clean energy technologies has the potential to cut dramatically CO2

https://doi.org/10.70322/ces.2024.10020
Clean Energy and Sustainability 2024, 2, 10020 2 of 13

from the power sector and other energy-intensive industries [9]. Conversely, the role of GDP in influencing CO2 has
been well-explained by [10], who stated that when an economy is just starting out in its developmental phase, more
focus is on its growth rather than the quality of the environment. However, as the economy approaches a developed
state, ecological progress is observed due to the adoption of new technologies and an enlightened population.
Furthermore, globalization plays a crucial role in countries achieving their climate goals. Globalization means a country
can interact with other countries through trade, culture, politics, and finance. It also involves the movement of people
from one location to another. Globalization simply means a country’s economy is linked with the global economy.
Therefore, the economic interaction of a country with other countries will determine its environment, especially if the
trade dynamics, politics, and financial dealings are examined. Lastly, a well-developed financial system can increase a
country’s economic efficiency [11]. The argument regarding the FD-CO2 nexus comes in two folds: positive and
negative. Firstly, the positive association can be observed through three channels, namely, direct, business, and wealth
effects [12]. The direct effect is when consumers have access to finance (loans) due to lower rates, making them
purchase energy-consuming products that can drive CO2 upwards. The business effect relates to businesses expanding
their capacity due to cheap access to financial capital, thus spurring CO2. The wealth effect is when consumer and
business confidence increases due to the wealth-creating ability of the stock market, which could increase energy
demand and CO2 [13,14]. Secondly, the negative link between FD and CO2 occurs because firms and other energy
stakeholders are motivated due to a developed financial system to embrace innovative technologies. This occurs by
extensively investing in research and development (R&D) [15]. The inconsistencies in FD and CO2 nexus necessitate
further investigation.
Based on the G7 country classification, this article presents evidence from France, Germany, Canada, Italy, and
the United Kingdom. These countries were selected because they are highly industrialized developed countries, have
huge renewable energy potentials, and are among the largest groups of CO2 emitters. In addition, these countries are
economically advanced, and they further exert direct and indirect influences relative to the enactment of environmental
and technological advancements and global policy implementation. Ref. [16] stated that G7 economies are responsible
for 25% of energy system CO2. The report further revealed that these economies could set the global standard for
lowering emissions from heavy industries. Therefore, the information gleaned from these countries will contribute to
robust policy formulation that can apply to other economies.
Objectively, this study examines the relationship between REC, GDP, POP, GLO, FD and CO2 in selected G7
economies from 1990–2020 using methods such as the PMG-ARDL and DFE-ARDL. Therefore, the research questions
can simply be stated: Does REC, GDP, POP, GLO and FD have a positive, a negative, or no association with CO2?
Depending on the results, what are some of the reasons for this outcome?
The present research’s contribution to the existing literature can be witnessed from more than one perspective. To
begin with, the study accentuates the importance and relevance of REC policies as a tool in the CO2 reduction endeavors.
Secondly, this study further outlines a host of other factors that when simultaneously applied with REC, enhance
reduction in CO2. Thirdly, this research’s model (variables selected) is unique as it investigates the combined impact of
REC, GDP, POP, GLO, and FD on CO2, specifically in selected G7 economies—an area largely unexplored in existing
studies. Fourthly, this research employs robust second-generation econometric methods such as the PMG-ARDL and
DFE-ARDL, whose results account for scenarios relative to both static and dynamic eventualities. These methods are
suitable because (i) They both capture the true essence of the dynamic relationship between the variables; (ii) They
illustrate both the short and long-run estimation effects; (iii) They are characterized by efficiency and consistency in
model estimation; (iv) They address heterogeneity-related issues in the model; (v) they are suitable for panel data analysis
and most especially non-stationary data and; (vi) They establish clear and interpretable variable relationships.

2. Literature Review
2.1. REC and CO2 Relationship
REC is a by-product of R&D and technological advancements. These include solar, wind, tidal, and hydroelectric
energy sources. Ref. [17] studied how CO2 in BRICS countries affects REC and technological progress. The outcomes
suggest a negative relationship between both variables. Ref. [18] examined the extent to which REC, economic
globalization, and GDP influence CO2 in Turkey. Based on F-ARDL cointegration and the Fourier-Granger causality
test, the empirical results illustrate an inverse relationship between REC and CO2 and a positive relationship between
GDP, economic GLO, and CO2. Equally, the results show the existence of bidirectional causality linking economic
GLO to CO2 and GLO to REC.
Clean Energy and Sustainability 2024, 2, 10020 3 of 13

Ref. [19] explored the effects of REC, GDP, FD, and the control of corruption on CO2 in Asia Pacific Economic
Cooperation economics. Using the PMG-ARDL technique, the findings show that high CO2 significantly accelerates
GDP and REC, whereas FD and control of corruption significantly account for low CO2. Ref. [20] investigated the
impact of REC and oil prices on CO2 intensity in the Chinese transport sector. Based on the Bootstrap ARDL
methodology, their findings indicate that oil price and REC reduces CO2. Ref. [21] examined the effects of GDP,
urbanization, trade openness, FD, and REC on CO2 in Pakistan. The outcome of the fixed effect technique confirms
that urbanization, FD, and trade openness significantly increase CO2 while REC decreases CO2. Utilizing the GMM
method, ref. [22] established that technological innovation enhances the creation and development of REC, whose
consumption records an inverse effect on CO2 in BRICS economies.
Ref. [23] examined the dynamic linkages between CO2, energy utilization, financial growth, and GDP in SAARC
nations. Based on first and second-generation econometric approaches, the results show that energy consumption, FD,
export of products, and economic expansion positively enhance CO2. Using the quantile-on-quantile regression and
Fixed Effect Ordinary Least Squares methods, ref. [24] argued that all variables are positively associated with REC. At the
same time, FD and government stability positively impact CO2 in GCC countries. Ref. [25] also found that REC benefits the
environment in G7 economies. In Western and European economies, Ref. [26] opined that REC negatively links with CO2.

2.2. GDP and CO2 Relationship

Given the availability of different conclusions, the nexus between GDP and CO2 remains inconclusive. Using the
ARDL method, ref. [27] found that China’s GDP and CO2 are relatively decoupling. Evidence from the variance
decomposition indicates that CO2 will account for 20% of any shock to economic growth in the future [28]. Ref. [29]
researched the links between Pakistan’s energy consumption, GDP, and CO2 using the ARDL technique. The findings
showed that energy consumption and GDP drive CO2. Ref. [30] investigated the impact of urbanization and GDP on
CO2 in SSA countries. With inference from the STIRPAT framework, the results showed that urbanization, GDP,
industrial structure, trade, and POP, except for energy intensity, significantly influence CO2. Ref. [31] examined the
connection between natural resources, REC, GDP, and CO2 subject to 35 BRICS economies using the OLS and GMM
methods. The results showed CO2 and REC as the driving factors of GDP, while natural resources reduce GDP. The
results further illustrate that GDP and natural resources spur CO2 while REC reduces it. Ref. [32] investigated the link
between CO2 and regional GDP based on the Environmental Kuznets Curve. Relative to the utilization of the mean
decomposition method, the result indicates the existence of an inverse U-shaped relationship and the occurrence of a
Kuznets curve between both variables. In addition, ref. [25] confirmed the EKC hypothesis in G7 countries.

2.3. POP and CO2 Relationship

Population growth is closely associated with CO2. Ref. [33] investigated the impact of REC, forestry, GDP, and
demographics on the carbon footprint in India. Based on their analytical procedures, the empirical results show that
GDP increases the carbon footprint in the short-run (SR) and long-run (LR), while the demographic variable had no
influence. In addition, in East Asian countries, ref. [34] found that population aging significantly reduces CO2, while
energy generation, economic globalization, and GDP significantly and positively enhance CO2. In China, Using the
multiple mediation effect model, ref. [35] found that population aging reduces CO2 emissions. Ref. [36] analyzed the
nonlinear impact of POP agglomeration in big cities on CO2. Their suggested results show that POP in big cities
significantly raises CO2 through channels associated with both transportation and industrial effects. Ref. [37] assessed
the impact of POP factors and low-carbon innovation on CO2 as evidenced by China. The results retrieved based on the
PMG-ARDL approach argued that both POP size and density increase CO2, while low-carbon innovation and POP
quality in the LR decrease CO2. Ref. [38] opined that energy consumption and GDP positively drive CO2, while POP
had little or no effect on CO2 in Malaysia, Indonesia, and Thailand.
The significance and relevance of the concept of globalization cannot be undermined. This is a result of an ever-
changing business environment, which is linked to the practice of sustainable endeavors [39]. Ref. [40] found that
biomass energy significantly reduces CO2 directly and indirectly. In addition, social and political GLO enhance biomass
energy consumption in reducing CO2. Ref. [41] analyzed the impact of inequality, GLO, and GDP on CO2 in SSA
countries using Driscoll-Kray and Generalized Least Square (GLS) regression models. The results suggest that GLO is
environmentally friendly because it mitigates CO2. Using the NARDL method, ref. [42] found that negative shocks in
GLO and GDP influence CO2 positively and negatively, respectively. POP also influences CO2 positively. Using the
Pooled Mean Group (PMG) estimator, ref. [43] revealed that institutional quality, REC, and GLO aid in the reduction
Clean Energy and Sustainability 2024, 2, 10020 4 of 13

of CO2, while GDP and FD significantly enhance CO2 for the OECD countries. Employing the fixed effect model, ref.
[44] found that social globalization spurs CO2 in 170 countries.

2.4. FD and CO2 Relationship

Using the OLS, fixed effects, Dynamic Systems GMM, and GLS methods, ref. [45] found that GDP and FD drive
CO2 in Belt and Road economies. Utilizing the frequency domain and Fourier ARDL approach, ref. [46] revealed that
FD exerts a positive and significant effect on CO2. Employing the FMOLS estimator, ref. [47] opined that there is an
adverse link between FD and CO2 in G8 countries. Furthermore, ref. [48] assessed the impact of FD on CO2 in Jamaica
using the NARDL framework and found that FD negatively affects CO2. Additionally, ref. [49], using the GMM
approach examined the impact financial market development has on CO2 in 83 countries. The results show a reduction
in CO2 for both emerging and developing countries as FD increases. Again, ref. [50] assessed the impact of FD on CO2
and found that FD significantly increases CO2 for emerging markets and developing countries, while for developed
countries, FD exerts no effect on CO2. In addition, ref. [51] investigated the extent to which CO2 is influenced by FD
mechanisms in China. The results indicate a drastic reduction in CO2 by FD in the LR, accompanied by no significant
short-term relationship. Ref. [52] investigated the dynamic linkages between FD, GLO, and CO2 and found that FD and
GLO significantly reduce CO2, while GDP and energy intensity enhance CO2. Ref. [53] examined the extent to which
CO2 emissions in REC countries are influenced by GDP, REC, NRE, trade openness, and FD. The results show a negative
link between REC, trade openness, FD, and CO2. In G7 economies, ref. [54] established that FD contributes to
environmental degradation.
The relationship between REC, GDP, POP, GLO, FD, and CO2 has been subject to many complex and diversified
conclusions. It is worth noting that many studies have examined this subject matter, but significant gaps still do occur,
which is a basis for further research. The identified gaps in the existing literature are (i) inadequacies relative to
multivariate analytical methods and procedures. As a result, the PMG-ARDL, and DFE-ARDL methods are employed;
(ii) inadequate illustration of short and long-run estimation necessary for the policy evaluation; (iii) Inadequate literature
on the degree to which CO2 is enhanced by FD and GLO. Specifically, using the financial development and globalization
indexes are some of the contributions of this research. In conclusion, the research, to a greater extent, attempts to
overcome these gaps to provide more feasible, comprehensive, and reliable results for well-informed policy
recommendations and decision-making.

3. Data and Methodology

3.1. Data
The analysis is comprised of data ranging from 1990 to 2020. CO2 (Carbon dioxide emissions in metric tons) is the
regressand, while its explanatory variables are REC (Renewable Energy Consumption), Economic Growth (GDP per
capita constant US$2015), POP (Population growth rate), GLO (Globalization), and FD (Financial Development). CO2,
REC, and GDP are from the [55]; GLO data is from [56], and FD data is from [57]. The list of the variables can be seen
in Table 1 and the graphical representation of the variables is presented in Figure 1.

Table 1. Variables description.

Symbol Variable Source
CO2 Carbon dioxide emissions in metric tons World Bank (2024)
REC Renewable energy consumption (% of total final energy consumption) World Bank (2024)
GDP GDP Per Capita Constant US$2015 World Bank (2024)
POP Population Growth (annual%) World Bank (2024)
FD Financial Development IMF (2023)
GLO Globalization KOF Swiss Economic Institute (2024)
Clean Energy and Sustainability 2024, 2, 10020 5 of 13

Canada - CO2 France - CO2 Germ any - CO2 Italy - CO2 UK - CO2 Canada - REC
18 7 14 9 10 24
17 6 12 8
8 23
16 7
5 10
15 6
6 22
14 4 8 5

13 3 6 4 4 21
90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20

France - REC Germ any - REC Italy - REC UK - REC Canada - GDP France - GDP
18 20 20 16 28.2 28.6
16 15 15 12 28.0 28.5
14 28.4
10 10 8 27.8
12 28.3
5 5 4 27.6
10 28.2
8 0 0 0 27.4 28.1
90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20

Germ any - GDP Italy - GDP UK - GDP Canada - POP France - POP Germ any - POP
29.0 28.4 28.8 1.6 1.0 1

28.3 28.6 1.4 0.8

28.8 0
1.2
28.2 28.4 0.6
1.0
28.6 -1
28.1 28.2 0.8 0.4

28.4 28.0 28.0 0.6 0.2 -2

90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20

Italy - POP UK - POP Canada - GLO France - GLO Germ any - GLO Italy - GLO
1.2 0.8 85 88 90 85
0.8
80 84 85 80
0.4 0.6
0.0 75 80 80 75
-0.4 0.4
70 76 75 70
-0.8
-1.2 0.2 65 72 70 65
90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20

UK - GLO Canada - FD France - FD Germ any - FD Italy - FD UK - FD

92 1.0 0.9 0.8 0.8 1.0

88 0.9 0.8 0.7 0.9

0.7
0.8 0.7 0.6 0.8
84
0.7 0.6 0.5 0.7
0.6
80
0.6 0.5 0.4 0.6
76 0.5 0.4 0.5 0.3 0.5
90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20 90 95 00 05 10 15 20

Figure 1. Variables plot.

Furthermore, this study model can be written as:
CO2it = f (RECit, GDPit, POPit, GLOit, FDit) (1)
Equation (1) can be further written as:
CO2it = α + β1RECit + β2GDPit + β3POPit + β4GLOit + β5FDit + ɛit (2)
where: ɛ = Error Term; β1 – β4 = Coefficients of independent variables; α = Intercept; i = Countries and t = Time. In
addition, based on the reviewed literature, we hypothesize that REC will be negatively associated with CO2 emissions.
In contrast, the impact of GDP, POP, GLO, and FD on CO2 can be positive or negative.

3.2. Methodology
3.2.1. Pooled Mean Group ARDL (PMG-ARDL)
This study employs the PMG-ARDL method proposed by [58]. The model is utilized when the variables under
analysis are stationary either at I(0) or I(1) or both but never at I(2). The reliability of this model is that it illustrates
variable result analysis for the SR and LR. The merits attributed to this model are buttressed by its ability to outplay
aspects relating to multicollinearity, autocorrelation, heteroscedasticity, and endogeneity-related issues. Three aspects,
including the Pooled mean Group (PMG), Mean Group (MG), and Dynamic Fixed effects (DFE), constitute the
aforementioned model. It is mathematically illustrated as follows:

(3)

where Δ𝑦 is the first difference of dependent variable for ith (unit of cross-section) and tth (time); Δ𝑥 , represents
the first difference of independent variables for ith (cross-section unit) and tth (time); p and q are the lag orders for the
dependent and independent variables; 𝑦 , are the lagged period of the dependent variable; 𝛼 is the constant; 𝛽
and ϒ𝑘 are short-run lagged differences on dependent and independent variables; δ1 represents the long-run.

3.2.2. Dynamic Fixed Effects Auto-Regressive Distributive Lags (DFE-ARDL)

This model is most often looked upon as an extension of the ARDL model. This model’s peculiarity is that it
considers aspects relating to fixed and dynamic attributes of the data type, usually panel. The DFE-ARDL method is
used when there is a potential relationship among the variables and when controlling character-specific aspects of the
data. The model is illustrated below as follows:
Clean Energy and Sustainability 2024, 2, 10020 6 of 13

(4)

where Δ𝑦 is the first difference of dependent variable for ith (unit of cross-section) and tth (time); Δ𝑥 , represents the
first difference of independent variables for ith (cross-section unit) and tth (time); p and q are the lag orders for the
dependent and independent variables; 𝑦 , are the lagged period of the dependent variable; 𝛼 represents each cross-
section’s fixed effects; 𝛽 and ϒ𝑘 are short-run lagged differences on dependent and independent variables; δ1
represents the long-run. The methodological workflow of this research is presented in Figure 2.

Figure 2. Methodological workflow.

4. Empirical Findings and Discussions

4.1. Cross-Section Dependence (CSD) Assessment
Before verifying the occurrence of unit roots within the series, it is important to ascertain the possible existence of
CSD within the model’s variables. Table 2 displays CSD within the panel series relative to their probability values.
Table 2 confirms the presence of CSD among the variables because the p-values are less than 5%. This means the
second-generation unit root test will be appropriate for this study.

Table 2. Cross-Sectional Dependency test results.

Test Statistic Probability
Breusch-Pagan LM 50.07444 0.000 *
Pesaran Scaled LM 8.960916 0.000 *
Pesaran CD 5.171321 0.000 *
Note: * implies p < 0.01.

4.2. Unit Root Testing

Table 3 illustrates the Pesaran-CIPS and CADF unit root tests, which are second-generation tests. The outcome of
the CIPS test shows that REC, POP, and GLO are not stationary (I(0)), while CO2, GDP, and FD are stationary. In
addition, all variables are stationary at (I(1)). For the CADF test, all variables are stationary at (I(1)). The combination
of both tests shows a mixed order of integration.
Clean Energy and Sustainability 2024, 2, 10020 7 of 13

Table 3. Pesaran-CIPS and CADF panel unit root test results.

CIPS CADF
Variables
I(0) I(1) I(0) I(1)
CO2 –3.230 ** –5.715 ** –2.246 –2.854 ***
REC –1.013 –5.051 *** –0.231 –1.462
GDP –3.377 *** –4.445 ** –2.763 –3.043 **
POP –1.380 –5.195 * –0.904 –2.958 ***
GLO –2.007 –4.838 ** –2.097 –2.660
FD –3.037 ** –5.813 *** –2.598 –3.510 *
Note: * implies p < 0.01, ** implies p < 0.05; *** implies p < 0.1.

4.3. Descriptive Statistics

Table 4 illustrates the descriptive statistics. The highest mean (82.19) and median (82.35) are observed in variable
GLO, while the lowest mean (0.48) and median (0.46) are observed in POP. There is a minimal occurrence of outliers
in the aforementioned variables buttressed by the closeness seen from the resultant differences between the mean and
median values and from the maximum and minimum values. In addition, CO2, REC, GDP, and GLO are platykurtic,
given that their kurtosis coefficients are less than 3, while POP and FD are leptokurtic, given that their coefficients are
greater than 3. Moreover, all the variables in the model do not follow a normal distribution, as reinforced by their
probability values. The sufficiency of the panel data is justified by the availability of 155 observations. Table 5 also
shows the correlation matrix, and it establishes that REC, POP, and FD positively correlate with CO2, while GDP and
GLO are negatively correlated with CO2.

Table 4. Descriptive statistics.

CO2 REC GDP POP GLO FD
Mean 9.23 10.89 28.33 0.48 82.19 0.72
Median 8.53 10.54 28.31 0.46 82.35 0.75
Minimum 3.95 0.61 27.47 −1.85 67.55 0.35
Maximum 17.38 23.85 28.91 1.50 89.45 0.95
Std. Dev 3.75 7.22 0.33 0.45 4.94 0.13
Skewness 0.82 0.25 −0.54 −0.93 −0.57 −0.82
Kurtosis 2.47 1.80 2.93 6.83 2.80 3.32
Jarque Bera 19.22 10.83 7.77 116.70 8.64 18.36
Probability 0.00 0.00 0.00 0.00 0.01 0.00
Observation 155 155 155 155 155 155

Table 5. Correlation matrix.

Variables CO2 REC GDP POP GLO FD
CO2 1.0000
REC 0.4839 1.0000
GDP –0.5650 –0.5144 1.0000
POP 0.5188 0.4128 –0.4435 1.0000
GLO –0.2444 0.0362 0.6707 –0.0545 1.0000
FD 0.1155 0.1537 0.2928 0.1946 0.7818 1.000

4.4. Regression Results

4.4.1. Dynamic Fixed Effect Results
The results retrieved from the DFE-ARDL analysis are illustrated in Table 6. The LR and SR analysis of the model
are presented. Based on the LR analysis, REC, GDP, and POP are statistically significant at 5%, 5%, and 10%, given
that the probability values are lower than 0.05, 0.05, and 0.1, respectively. Hence, we can reject the null hypothesis that
REC, GDP, and POP do not significantly affect CO2. Thus, an average increase in one unit of REC, GDP, and POP will
decrease CO2 by about 0.218%, 5.276%, and 1.215%, respectively. The other variables, GLO and FD, are statistically
insignificant. Thus, they exert no influence on CO2. Regarding the SR scenario, REC, GDP, POP, and FD are
statistically significant at 5%, 1%, 1%, and 5%, given that their probability values are below 0.05, 0.01, 0.01, and 0.05,
respectively. Hence, REC, GDP, POP, and FD affect CO2. Thus, an average increase in one unit of REC, FD, GDP, and
POP will lead to an estimated decrease in CO2 of about 0.087% and 1.468% and a corresponding increase of about
Clean Energy and Sustainability 2024, 2, 10020 8 of 13

6.153% and 0.220%, respectively. GLO is not statistically significant and hence exerts no influence on CO2. The ECT
(–0.136) is negative and statistically significant, demonstrating a LR relationship between our variables of interest. This
illustrates the speed at which the model adjusts to the long-run equilibrium situation relative to the occurrence of shocks.

Table 6. DFE-ARDL results.

Long-Run (LR) Estimation Coeff. Z p > /z/
REC –0.218 –2.41 0.016 **
GDP –5.276 –2.15 0.031 **
POP –1.215 –1.73 0.084 ***
GLO 0.112 0.62 0.539
FD 1.001 0.26 0.798
Short-run (SR) Estimation
ECT –0.136 –3.56 0.000 *
REC –0.087 –2.12 0.034 **
GDP 6.153 5.89 0.000 *
POP 0.220 2.68 0.007 *
GLO 0.007 0.23 0.818
FD –1.468 –2.11 0.035 **
C 20.577 2.39 0.017 **
Note: * implies p < 0.01, ** implies p < 0.05, *** implies p < 0.1.

4.4.2. PMG-ARDL
The results retrieved from the PMG-ARDL analysis are illustrated in Table 7. The LR and SR analysis of the model
are presented. Based on the LR analysis, an average increase in one unit of REC and GLO will decrease CO2 by 0.225%
and 0.123%, respectively. The other variables, GDP, POP, and FD, are statistically insignificant and thus do not affect
CO2. Regarding the SR, an average increase in one unit of GDP and FD will lead to an increase in CO2 of about 5.854%
and a corresponding decrease of about 0.666%, respectively. REC, POP, and GLO are not statistically significant; hence,
they do not affect CO2. The ECT is statistically significant and negative, showing that the economy will return to
equilibrium at an adjustment speed of 0.24%.

Table 7. PMG-ARDL results.

Long-Run (LR) Analysis Coeff. Z p > /z/
REC –0.225 –4.74 0.000 *
GDP 2.143 1.07 0.285
POP –0.388 –1.03 0.304
GLO –0.123 –2.70 0.007 *
FD –1.095 –0.65 0.518
Short-run (SR) Analysis
ECT –0.245 –2.00 0.045 **
REC –0.124 –1.34 0.181
GDP 5.854 2.38 0.018 **
POP 0.037 0.24 0.809
GLO 0.014 0.81 0.418
FD –0.666 –1.85 0.065 ***
C –9.892 –1.90 0.057 ***
Note: * implies p < 0.01, ** implies p < 0.05, *** implies p < 0.1.

4.5. Discussion
Based on DFE-ARDL analysis, both the SR and LR estimates illustrate a negative relationship between REC and
CO2. This suggests that the countries are intensely involved in the use of renewable energy as well as effective
environmental sustainability measures. This also confirms the environmentally friendly nature of clean energy sources.
The PMG-ARDL approach also showed that REC had a non-significant negative impact on CO2, while the LR results
are similar to the DFE-ARDL findings. The inherent demonstrated inverse relationship between REC and CO2 is backed
by existing literature [17,18,21,22,53].
Secondly, the SR estimates of DFE-ARDL analysis confirmed a positive association between GDP and CO2. This
implies that as the country grows, so does CO2 increase, given that the policies and frameworks geared towards the
Clean Energy and Sustainability 2024, 2, 10020 9 of 13

reduction of CO2 are still under either assessment or are yet to be fully implemented. However, a negative connection
between GDP and CO2 is established in the LR. This implies that the earlier set policies and frameworks geared towards
environmental sustainability have become effective. Hence, the growth of the country in no way harms the environment.
The PMG-ARDL results are also similar, except for the LR result, which is positive and insignificant. The positive link
between GDP and CO2 is supported by [29] for Pakistan, ref. [30] for SSA economies, and [31] for BRICS. On the
contrary, the inverse association between GDP and CO2 is confirmed by [27,32].
Furthermore, the DFE-ARDL results established that POP increases CO2 in the SR and reduces CO2 in the LR.
This means that as the economy grows, so does the population develop in terms of their level of education. This
educational attainment makes people more concerned about preserving their environment, thus avoiding energy sources
and policies that deplete their environment. In addition, this new knowledge enables the population to adopt birth control
measures and embrace and implement demographic related measures such as family planning, demographic
transitioning and urbanization, which significantly decrease CO2. This viewpoint is corroborated by [34] for East Asian
economies and [35] for China. On the contrary, the positive link between POP and CO2 is justified by the absence of
birth control measures and other measures associated with population demographics, which, in turn, accelerates CO2.
This corresponds with the studies of [42] for the global economy and [36] for China. The following studies also found
no link between POP and CO2 [33,38].
Based on the DFE-ARDL findings, this research also established that GLO reduces CO2 in the LR. The implication
is that the countries considered in this study are implementing GLO-related policies such as green finance, innovation
and technology transfer, and involvement in global environmental agreements, which benefit the environment. This
outcome is supported by [39,41–43,52].
Finally, estimations based on DFE-ARDL illustrate an inverse relation between FD and CO2 in the SR. However,
FD exerts no influence on CO2 in the LR, given that it is statistically insignificant. The estimations based on PMG-
ARDL also illustrate a negative relationship in the SR, which is justified by the implementation of some policies such
as carbon pricing and green investment. The negative FD-CO2 nexus is confirmed by [52] for APEC economies and [53] for
top renewable energy economies. The study outcome is further presented in Figure 3.

Figure 3. Study outcome.

Clean Energy and Sustainability 2024, 2, 10020 10 of 13

5. Conclusions and Policy Recommendations

This study ascertains the extent to which renewable energy consumption (REC), economic growth (GDP),
population growth (POP), globalization (GLO), and financial development (FD) affect carbon dioxide emissions (CO2)
in selected G7 economies (France, Germany, Canada, Italy, and the United Kingdom) from 1990–2020. DFE-ARDL
and PMG-ARDL methods were employed for analysis. The empirical findings for DFE-ARDL showed that REC, GDP,
and POP have an adverse association with CO2 in the long-term. However, in the short-term, REC and FD improve the
environment, while GDP and POP drive CO2. It is observed that the result for REC in the short and long-run is consistent.
The PMG-ARDL results revealed that REC and GLO negatively affect CO2 in the long-run, and in the short-run, GDP
spurs CO2, while FD reduces it.
The policy recommendation concerning this study is aggregately based on the results retrieved from DFE-ARDL
and PMG-ARDL. Thus, the investigated countries should focus on the investment and utilization of renewable energy,
given that both the SR and LR impact is negative. More funding should be allocated to research and development of
new and better renewable energy sources, which will further mitigate CO2. Aside from the above, to further mitigate
CO2, the countries can adopt and implement globalization endeavors such as innovation and technology transfer, global
campaign awareness, and green investment financing, which will go a long way toward delimiting CO2.
Furthermore, the reconstruction and revitalization of areas involved in the extraction and exploitation of renewable
energy sources should be implemented, as this would help replenish and sustain the environment, thereby reducing CO2
emissions. Additionally, using clean energy technologies stemming from renewable energy sources should be
encouraged, improved and implemented, as this goes a long way to mitigate the CO2. Besides, decision-makers and
stakeholders are encouraged to carry out investment activities characterized by less human intervention to maintain the
ecology and the environment.
It is also essential to mention the strategies by which GDP can be decoupled from CO2. These strategies include
transitioning to renewable energy, as previously recommended, adopting energy-enhancing technologies, promoting
sustainable production and consumption, implementing carbon pricing and incentives, and strengthening environmental
regulations. Despite this study’s outlined relevance and importance, it is equally plagued with limitations. First, there
are two G7 economies for which data is not accessible. Consequently, five nations were chosen from the G7 economies,
preventing the most comprehensive results. Second, the case study only focuses on the G7 economies, meaning its
findings cannot be generalized. Thus, other country classifications such as BRICS, MENA, OECD, and E-7 can be
examined in prospective publications to verify the generality of the derived results from this research. Third, the study
does not account for issues related to nonlinearity, possibly existing amongst the variables. As a result, nonlinear
econometric techniques can be employed in further studies. Fourth, the study period slatted from 1990 to 2020 reduces
the comprehensiveness of the results, which in the long-term mitigates the intended completeness of the study’s
empirical outcome. Further studies can employ a large data set with extended years.
For further studies, a host of environmental sustainability variables, inclusive of green investment, green finance
and green trade should be included in future research for more clarity, traceability and increased reliability. In addition,
advanced econometric techniques can be employed.

Author Contributions
Conceptualization, A.A.E. and O.A.S.; Methodology, A.A.E. and O.A.S.; Software, A.A.E. and O.A.S.; Validation,
A.A.E., O.A.S and H.O.; Formal Analysis, A.A.E.; Investigation, A.A.E.; Resources, A.A.E. and O.A.S.; Data Curation,
A.A.E.; Writing—Original Draft Preparation, A.A.E. and O.A.S.; Writing—Review & Editing, A.A.E. and O.A.S.;
Visualization, O.A.S.; Supervision, H.E.; Project Administration, O.A.S. and H.O.; Funding Acquisition, None.

Ethics Statement
Not applicable.

Informed Consent Statement

Not applicable.

Funding
This research received no external funding.
Clean Energy and Sustainability 2024, 2, 10020 11 of 13

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have
appeared to influence the work reported in this paper.

Data Availability Statement

The authors confirm that all data generated or analyzed during this study are included in the data section of our
article. In addition, data will be available upon request.

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