Impact of Green Fiscal Policies, Renewable Energy Technologies, and Sustainable Investments on Environmental Degradation: Evidence from SAARC Countries

Abstract

This study examines the effect of "green fiscal policies" (GFP), "renewable energy technologies" (RET) and "sustainable investments" (SI) on environmental degradation in the SAARC member countries from 2002–2024. Carbon dioxide (CO2) emissions per capita are used as a proxy for environmental degradation. The independent variables include green fiscal policy (in terms of environmental tax revenue as a percentage of GDP), renewable energy technology adoption (RE share of total final energy consumption) and sustainable investment (Gross fixed capital formation as a percentage of GDP). Two theoretically-informed control variables, trade openness and urbanization, are included to capture structural economic and demographic dimensions that drive emissions trends. The empirical method uses rigorous second generation panel econometric procedures such as the cross sectional dependence diagnostics, CIPS and CADF panel unit root tests, Westerlund panel cointegration test, Cross Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model for short and long run dynamics, and Augmented Mean Group (AMG) and Common Correlated Effects Mean Group (CCEMG) estimators for long run coefficient robustness. The analysis is always consistent and shows that the take up of clean energy technology and investments in sustainability have a strong negative impact on CO2 emissions, and that green fiscal policy has a strong negative moderating effect on environmental degradation. Urbanization has heterogenous effects over the panel, whereas trade openness has a positive correlation with emissions. The results offer policy recommendations to the SAARC governments that are working towards sustainable development under the framework of the Paris Agreement.