Exploring Financial Contagion and the Energy Kuznets Curve in the context of Romania’s Transitions to a Circular Economy

This study discusses the renewable energy adoption and CO2 emissions, dealing also with the intersection of financial contagion and Romania’s transition to a Circular Economy (CE). Financial contagion is defined as the shocks transmission across markets and sectors. Especially in emerging economies like Romania, financial contagion brings about issues related to green investments and renewable energy stability. By means of the Energy Kuznets Curve (EKC), the non-linear relationship between economic growth, renewable energy production, and CO2 emissions during 1990-2023. By means of econometric tools, including ARDL models and cointegration analysis, this study focuses on two issues: the impact of financial contagion on short- and long-term between renewable energy production and CO2 emissions, and the influence of global financial shocks on the EKC trajectory. We obtain that financial contagion delays decarbonization, initially increasing CO2 emissions due to inefficiencies in hybrid energy systems. Even if renewable energy adoption gradually reduces emissions, the absence of significant turning points in the EKC suggests Romania is in the early stages of its energy transition. Therefore, it arises the need to include financial stability mechanisms into CE strategies to counteract the negative effects of contagion and accelerate the shift to a low-carbon economy. The study makes a contribution the literature by showing the relationship between financial contagion, renewable energy, and emissions. Policymakers are provided with actionable recommendations to strengthen Romania’s resilience and sustainability.