Estimating the Governance Effect on Carbon Dioxide Emissions in Croatia

Good governance is crucial in addressing environmental concerns, promoting economic growth through transparent policies, attracting investment in energy efficiency and renewable energy, building trust, and supporting sustainable business practices. This paper estimates the impact of governance, using six World Bank indicators, on carbon dioxide (CO2) emissions in Croatia from 1996 to 2022, while accounting for per capita real GDP and final energy consumption. Nonparametric kernel regression techniques were employed in both two‐ and three‐predictor models. The results highlight government effectiveness and the rule of law as key governance variables in reducing CO2 emissions. A more effective government reduces emissions by enforcing environmental policies, promoting clean technologies, and investing in energy efficiency and sustainable practices. Similarly, the rule of law aids in carbon control by upholding regulations, discouraging non‐compliance, and supporting environmentally friendly resources and economic activities. Although these governance variables have a significant mitigating effect, their impact is very small, particularly when compared to real gross domestic product and especially energy consumption, which are the significant drivers of increasing CO2 emissions. This influence is consistently observed across various model specifications and estimation methods.