Research On The Role Of Environmental Taxes In Sustainable Development Of The OECD Countries

Current study examines the role of recent environmental reform’s role in the shifting away from fossil fuels and integrate renewable energy sources to achieve sustainable development in OECD countries.We extend the existing environmental literature by analyzing the role of environmental taxation in terms of energy consumptions energy intensity,renewable energy and carbon emissions.Also,one of the objectives of current study is to examine the role of macroeconomic and environmental policy indicators such as urbanization,financial development,trade openness,economic growth,industrialization,environmental technologies,environmental policy stringency index and environmental expenditures.Although,the heterogeneous and spatial impact of macroeconomic variables has been explored in the existing literature.However,from the aspect of environmental taxation,these variables especially environmental policy variables remain unexplored,which current study empirically investigated.Additionally,we investigate the role of institutional variables over energy consumption and energy intensity functions,which the previous studies have failed to investigate.As OECD countries are trying to sustain higher economic growth trends,which not only tends to impact industrial and production activities but also have an influential impact of environmental sustainability.Therefore,it is of great significance to analyze how environmental taxes affect environmental pollution and environmental sustainability in the long run.This study is organized in three distinct phases.In the first phases,we analyze the impact of environmental taxes on energy consumption and energy intensity.We further divide 29 OECD countries in to G-7 countries and rest of OECD economies to research how environmental taxes impact different groups of countries based on their industrial development status.Additionally,we examine how unforeseen macroeconomic events such as global financial crisis affect the introduction of environmental reforms.In second phase,we further investigate how renewable energy is impacted by the introduction of environmental taxes,environmental technologies,environmental policy stringency index and environmental expenditures.Lastly,in the third phase,we research the impact of environmental taxes on carbon emissions.In order to achieve primary research objectives,we use empirical dataset of 29 OECD countries from 1994 to 2018.The data for variables selected for empirical analysis such as environmental taxes,energy consumption,energy intensity,carbon emissions,renewable energy,financial development,trade openness,economic growth,industrialization,environmental technologies,environmental policy stringency index and environmental expenditures for 29 OECD countries is collected from world bank,IMF,and OECD databases.Concerning empirical methodology,current study utilized FMOLS,DOLS,system GMM,IV regression,panel quantile regression,OLS fixed effects,panel ARDL and ECC-GMM as main empirical strategies to empirically analyze the data.Additionally,we use pairwise correlation,cross sectional dependence tests,panel unit root tests,and panel cointegration tests to examine data correlation and stationarity properties before main econometric analysis.The summary statistics for empirical,exogenous and other controlled variables during all three econometric phases report no outliers.The empirical findings in the context of energy consumption,energy intensity,carbon emissions and renewable energy provide novel and interesting outcomes and provide statistical evidence regarding the effectiveness of environmental taxes in modern environmental and energy reforms.Regarding the first research objective,our empirical findings indicate that environmental taxes have a negative association with energy consumption as environmental taxation in OECD countries limits fossil fuel consumption and promote renewable energy sources.The empirical results for energy intensity also report similar findings,where environmental taxes have a significant and negative impact on energy intensity to help derive policy conclusion that not only environmental taxes reduce energy consumption but also contribute to energy efficiency.Furthermore,urbanization,economic growth,trade openness,and financial development significantly influence energy consumption and energy intensity.We further investigate the possible occurrence of uncertain macro-economic events i.e.,global financial crisis and how these events influence environmental reforms as general transformation towards becoming a low-carbon economy requires a robust financial sector.Our pre-and post-financial crisis analysis indicates that environmental taxes have resulted in lower energy consumption and energy intensity.Moreover,Dumitrescu and Hurlin causality analysis further reveals the bidirectional causality analysis between environmental taxes,energy consumption,and energy intensity.Also,SGMM and IV regression analysis also support the outcomes of empirical findings.Lastly,we categorization of 29 OECD countries into two groups: G-7 countries and the rest of the OECD economies further analyzes the extent of environmental taxes’ impact on energy consumption and energy intensity within OECD countries.Our empirical findings are in line with the overall findings,although the impact of environmental taxes on energy consumption and energy intensity is higher in the rest of the OECD countries than G-7 economies.For second research objective,we empirically examine the environmental taxes-renewable energy nexus to reveal that economic growth and industrialization promote renewable energy consumption as OECD economies move away from fossil fuels to promote sustainable growth models.Similarly,environmental technologies positively impact renewable energy consumption as developments in environmental technologies limit GHG emissions.However,some of our findings are inconsistent with the existing literature on industrial economies.First,the negative association between environmental taxes and renewable energy consumption is contrary to the current studies.This allows us to suggest that market-based instruments should support environmental regulations to promote renewable energy consumption.Environmental expenditures and environmental patents are also negatively associated with renewable energy consumption.To overcome this,ease of restrictions on technological transmission and lowering intellectual property rights costs can positively link environmental patents,environmental expenditure,and renewable energy.For third research objective,we research how environmental taxes affect carbon emissions in the OECD countries.Our empirical findings indicate that environmental taxes,renewable energy and innovation in environmental technologies bears a negative association to indicate that environmental taxes in OECD countries have resulted in lower carbon emissions by facilitating developments in environmental technologies and higher share of renewable energy.We further report that economic growth has a positive association with carbon emissions mainly because industrial and economic activities use fossil fuels as primary energy source,which contributes to higher GHG emissions.Furthermore,the findings of financial intermediation efficiency have positive,while the size of the financial system and financial globalization has a negative association with carbon emissions in OECD countries.These findings align with the existing literature and explain that recent financial industry reforms have prevented environmental damage by providing greater financial support to cleaner energy sources as financial institutions are reluctant to allocate funds towards fossil fuel-intensive industries.Overall.The main contribution of current research includes three main aspects.First,this research empirically analyzes the impact of environmental taxes and their impact on energy consumption and energy intensity in OECD,G-7 and rest of OECD countries.This research also emphasizes the impact of global financial crisis and how it has impacted recent environmental reforms in OECD economies,which lay a foundation for academic scholars and policymakers to better understand how economic uncertainties i.e.,global financial crisis can influence the outcome of environmental reforms.Second,this study discusses the association of environmental taxes,environmental policy and renewable energy to help researchers to have a clearer understanding of environmental policies and how to effectively utilize environmental taxes to increase renewable energy consumption.Third,we analyzed the empirical association between environmental taxes,financial development and carbon emissions.Our findings help industrial and developing economies to better understand the heterogeneity of financial development sub-components and provide practical policy guidelines to overcome environmental degradation.Furthermore,this research discusses the limitations and deficiencies of this research,and puts forward the future research directions.Figures 17,Tables 39,References 285.