Financial Determinants of Carbon dioxide emissions

Abstract: In recent years, the raising concern about carbon dioxide emissions has been linked to not only environmental or industrial, but also financial aspects. Common financial determinants of carbon dioxide emissions analysed by previous studies include economic and financial development, financial structure, and trade openness of a country. The main aim of this paper is to investigate the financial determinants by estimating a regression model that accounts for them. By analysing a panel dataset, which consists of 55 countries during the time from 1996 to 2017, evidence of the Environmental Kuznets Curve is found, implying that the relationship between a country’s GDP per capita and greenhouse gas emissions can be visualised by an inverse U-shaped curve with the turning point at around USD 15 900. It is also found that financial development is another significant determinant, having an increasing effect on carbon dioxide emissions. Including a spatial weight matrix in the panel regression model allows to control for the spatial effects. In addition, the paper summarizes most common environmental policies as The Paris Agreement and European Union Emissions Trading Scheme, which according to the difference-in-difference model estimates can be accounted for almost 30% reduction in carbon dioxide emissions.