Internalizing CO2 emissions via central banks’ financials: Evidence from the world

Researchers and policy-makers have suggested tools to mitigate CO2 emissions worldwide. However, there appears to be uncertainty in terms of policy effectiveness. The objective of this paper is to develop an innovatively effective CO2 internalizing mechanism worldwide which builds on currency in circulation as its core operational tool. The study is based on a large sample of countries. Findings show that urbanization, electric power consumption and trade positively impact on CO2 emissions. No evidence is found in favour of the Environmental Kuznets Curve while the use of renewable energy reduces the level of CO2 emissions. The paper proposes a Central Bank Carbon Dioxide Emissions Internalizing Fund which rests on quantitative and qualitative tools to ensure a truly effective mechanism in CO2 emissions abatement. Quantitatively, this implies the use of a direct tax on currency in circulation and a conversion penalty in the fund. Qualitatively, there is the need to establish a global institution which would ensure that funds flow to the most polluting sectors in each country in view of unleashing the strongest decline in CO2 emissions.