The moderating role of financial development in the renewable energy consumption - CO2 emissions linkage: The case study of Next-11 countries

Renewable energy is a vital alternative towards mitigating environmental problems. The transition to renewable energy is likely to be delayed and become increasingly costly without timely and necessary financial support. However, there is a scarcity of studies investigating how the change in financial development affects the relationship between renewable energy and CO2 emissions. Here we propose a conceptual framework to explore the moderating role of financial development in the renewable energy consumption-CO2 emissions linkage for the Next 11 countries from 1990 to 2015. We employed the Driscoll–Kraay to estimate the long-term coefficient and the Dumitrescu–Hurlin test to examine the causal relationship between variables. The results indicated that the interaction between financial development and renewable energy significantly reduced CO2 emissions. Synonymous financial development has brought into play a management role when controlling the positive impact of renewable energy on CO2 emissions environmental. Additionally, we observed a bidirectional causality between financial development and renewable energy; renewable energy and CO2 emissions. Our findings underscore the need for financial development policies that focus on promoting renewable energy, thereby helping reduce CO2 emissions and improve environmental quality.