Examining the influence of industrial growth, renewable energy consumption, and the financial development index on CO 2 emissions: Empirical insights from OECD countries

Abstract The increase in carbon dioxide (CO₂) emissions has precipitated a climate crisis, with the industrial sector identified as a significant contributor to escalating pollution levels. This research explores the impact of real gross domestic product (GDP), consumption of renewable and non-renewable energy (RE, NRE), financial development (FD), and industrial value added (IVA) on CO2 emissions across a panel of OECD countries spanning the period 2000–2021. Cointegration techniques are employed to achieve this objective. The findings of the empirical analysis reveal cross-sectional dependence among countries. Furthermore, the variables are found to be integrated of order one, and cointegration tests indicate the presence of a long-run relationship between them. The results obtained from the fully modified ordinary least squares (FMOLS) analysis indicate that economic growth and non-renewable energy consumption are associated with an increase in CO₂ emissions. In contrast, renewable energy consumption, industrial value-added, and financial development are found to contribute to a reduction in emissions over the long term. The interaction between financial development and industrial value-added exhibits a positive influence on CO2 emissions, indicating a lack of alignment between financial and industrial strategies.