The Path to Environmental Sustainability: How Circular Economy, Natural Capital, and Structural Economic Changes Shape Greenhouse Gas Emissions in Germany

Environmental sustainability constitutes a strategic priority for Germany, with the circular economy serving a crucial function in its realization. Circular practices foster sustainable development by decreasing reliance on finite resources, minimizing waste, and reducing greenhouse gas (GHG) emissions. The circular economy provides ecological advantages and strengthens economic resilience through the promotion of innovation, enhancement of supply chain efficiency, and creation of green jobs. Complementary measures, including the preservation of natural capital, the enactment of structural economic reforms, and the implementation of environmental taxes, enhance sustainability objectives. Ecosystem conservation enhances carbon absorption, structural changes facilitate low-emission industries, and environmental taxes incorporate environmental costs. In contrast, industrial activity continues to be a significant contributor to GHG emissions, necessitating policy examination. This study analyzes the relationships between the circular economy, natural capital, structural change, environmental taxation, and industrial activities on GHG emissions in Germany from the first quarter of 2010 to the fourth quarter of 2022. The study employs wavelet coherence analysis (WCA), fully modified ordinary least squares (FMOLS), and dynamic ordinary least squares (DOLS), demonstrating that circular economy practices, natural capital, structural changes, and environmental taxes significantly reduce GHG emissions. Conversely, industrial activities continually elevate GHG emissions in Germany. Moreover, WCA further reveals the time–frequency dynamics and co-movement patterns between key variables and GHG emissions, enabling the detection of both short-term and long-term dependencies. The results indicate that enhancing environmental sustainability in Germany could be effectively achieved by mandating the integration of recycled materials within key industrial sectors to improve environmental sustainability, which would help lower resource extraction and related GHG emissions.