Climbing the green ladder in Sub-Saharan Africa: dynamics of financial development, green energy, and load capacity factor

With its critical role in tackling environmental degradation, advancing economic development, and cultivating a more sustainable and equitable future, green energy (GE) consumption is closely linked with several Sustainable Development Goals. This study explores the simultaneous effects of GE and decomposed financial development (FD) on environmental quality (EQ) proxied by load capacity factor (LCF) and carbon dioxide (CO2) emissions using a dynamic panel of 47 economies from 1990 to 2021. The two-stage System Generalized Methods of Moment (GMM) technique was used to estimate the interactions among variables. The study finds that both financial institutions (FI) and financial markets (FM) development have verifiable positive effects on LCF, thus, improving the environment. However, EQ is compromised (increased CO2 emissions) when FI and FM develop in Africa. Furthermore, this study reveals that whereas GE has a detrimental effect on the environment (reducing LCF), it reduces CO2 emissions (thus, improving EQ). FI development stimulates the harmful effect of GE on the environment by reducing LCF significantly. FM development significantly and positively moderates the GE and LCF nexus by increasing EQ in Africa. Interestingly, both FI and FM developments negatively moderate the GE and CO2 nexus. This implies that EQ improves as FI and FM interact with GE in the region all other things being equal. This study has relevant implications for environmental, financial, and economic policies in Africa to decarbonize and achieve the sustainable development goals. Relevant policy recommendations that can direct these nations’ policies towards guaranteeing ecological stability are made in light of these empirical findings.