Against a background of energy uncertainty and climate change, is there a substitution effect between fossil fuels in OECD countries?

This paper examines the influence of energy uncertainty, renewable energy, environmental taxes, and economic growth on carbon dioxide emissions in OECD countries from 2000 to 2020. We applied second-generation panel unit root tests, cointegration tests for cross-sectional dependence, and the cross-section panel autoregressive distributed lag method (CD-ARDL). The long- and short-run estimates indicate that increased energy uncertainty contributes to a reduction in pollution in OECD countries. This suggests that firms and industries may adopt more energy-efficient practices or transition to cleaner energy sources when faced with uncertainty in energy markets. However, this effect is more pronounced in the short term due to immediate behavioral responses, while long-term emission reductions necessitate structural changes and investments in low-carbon technologies. However, findings indicate that environmental taxes and economic growth contribute to increased CO2 emissions in both the short and long term. This raises concerns about the effectiveness of current ecological tax policies, as companies may prioritize immediate survival over sustainable transitions. Additionally, regulatory loopholes and compliance issues further diminish their impact. Nevertheless, renewable energy consumption does not appear to influence CO2 emissions, underscoring the challenges of integrating renewables into existing energy systems and the persistent dominance of fossil fuels. Furthermore, increased energy uncertainty leads to a reduction in pollution, while clean energy does not affect CO2 emissions, suggesting a potential substitution effect between fossil fuels. Policymakers should implement dynamic environmental tax reforms, invest in clean technologies, expand sustainable finance, and address energy uncertainty through diversified energy portfolios and research and development (R&D). This presents an opportunity to drive a structural transition toward resilient, low-carbon energy systems.