Decoupling of CO 2 Emissions from Growth with Energy Transition and Eco-Innovations in OECD: Novel Fourier-CS-ARDL and Fourier-DH-Causality Analyses

Decoupling between CO 2 emissions and economic growth is critical to reversing climate change. The OECD plays a crucial role in this regard, given its considerable share of global CO 2 emissions and GDP. This study examines the decoupling performance and the roles of renewable energy transition, as well as specific eco-innovations on climate change mitigation and environmental technology development across the OECD economies. The preliminary tests on a large panel of OECD countries identify cross-sectional dependence, structural breaks and heterogeneity. For robustness, the study proposes Fourier-CS-ARDL, Fourier-AMG, and Fourier–Dumitrescu–Hurlin methods as generalizations of their linear counterparts. After identifying cointegration and its singularity with Fourier-bootstrapping bounds and Fourier–Johansen tests, the modeling stage suggested a positive, but significantly inelastic long- and short-run elasticity of emissions to economic growth. Most of these effects are reversed by renewable energy transition in the long run and partially reversed in the short run. These CO 2 mitigation effects are also evident across different eco-innovations with varying temporal impacts. Novel Fourier causality tests identify feedback loops between CO 2 and CO 2 -mitigating factors, as well as unidirectional causality from growth to all mitigating factors, confirming the indirect effect of growth on CO 2 mitigation. Overall, these results clearly suggest “relative” decoupling in OECD accompanied by CO 2 e mitigation effects from eco-innovations and energy transition, and highlight the potential for green growth following the successful adaptation of energy transition and eco-innovations. Policymakers in OECD are encouraged to leverage the identified feedback mechanisms and establish international technology transfer policies to homogenously curb CO 2 emissions.