Green innovation, green investment, environmental taxation and economic development as determinants of environmental quality in OECD countries

Green growth as a concept gained prominence since the beginning of the millennium, and ever since, there has been increased focus on the credibility of instruments such as green investment, green innovation, and environmental taxation as means for making sustainability compatible with economic development. Against this backdrop, the present study investigated the impact of green innovation, green investment, and environmental taxation on the environmental quality of twenty-four OECD countries from 2001 to 2023. To diagnose this macro-panel data, the study uses cross-sectional dependence diagnostics followed by second-generation panel unit root tests. CS-ARDL technique, FMOLS and DOLS methods, and Panel Quantile Regression are used to derive robust empirical insights. The findings showed that green investment and environmental taxation contribute significantly to reducing carbon emissions. It is also observed that the highest emitting countries exhibit the strongest emission abating impact of green investment and environmental taxation. However, green innovations appear to have a positive impact on carbon emissions, indicating the need for a comprehensive assessment of the rebound effect as well as the invention-diffusion gap. The study recommends the use of policy mixes for effective implementation, especially diversifying the green investments while emphasising the maximum internalization of externalities via taxation.