Decarbonization Blueprints for Developing Countries: The Role of Energy Productivity, Renewable Energy, and Financial Development in Environmental Improvement

Abstract

As the International Energy Agency expects forecasts developing countries to become pollution hubs in the future, designing decarbonization blueprints has become critically important for the concerned governments. Hence, this study aims to identify the factors that can help developing nations in controlling their atmospheric discharges of carbon dioxide. Based on the rigorous econometric analysis, utilizing data from selected low- and middle-income nations, it is found that using energy productively and enhancing the share of renewable energy in the national energy consumption profiles can reduce carbon emissions. By contrast, urbanization exerts emission-boosting impacts while the corresponding impacts of financial development and international trade are inconclusive. Besides, the income group-specific analysis reveals heterogeneous outcomes as energy productivity improvement is found to decarbonize only the selected middle-income countries. However, the adoption of renewable energy exerts decarbonizing effects irrespective of the income group classification of the concerned developing nations. On the other hand, financial development hampers and promotes the decarbonization objectives of lower-middle-income and upper-middle-income countries, respectively. In addition, higher exports boost the emissions figures of low-income countries, in particular. Furthermore, urbanization is identified as a decarbonization-restricting factor for developing economies irrespective of their income group classifications. On the other hand, the outcomes from the regional and country-specific analyses also exhibit heterogeneity in the majority of the aspects. Considering these major findings, several decarbonization strategies are recommended.