Achieving carbon neutrality in emerging markets: The dual impact of energy transition investments on economic growth and carbon emissions

This study investigates the effectiveness of energy transition investments (ETIs) in achieving net-zero emissions. Specifically, it revaluates the environmental Kuznets curve (EKC) by analysing whether ETIs can simultaneously stimulate economic activity and reduce carbon emissions (CE) using the Autoregressive Distributed Lag (ARDL) model. The analysis focuses on a sample of emerging countries. In contrast to previous research, the study expands the EKC model by incorporating the ETIs variable, which encompasses a broader and more comprehensive range of investments that contribute to climate change mitigation, beyond just renewable energy. Additionally, the study employs total factor productivity (TFP) as a measure of economic activity, instead of GDP, considering the efficiency of technology, energy, and other resources. Key findings indicate that the TFP coefficient is higher in the short term compared to the long-term supporting the validity of the EKC hypothesis. This suggest that emerging countries have reached a TFP level of that helps reduce their CE, aiding climate change adaptation and mitigation. The study also reveals a negative effect of ETIs on CE and shows that an increase in TFP significantly enhances ETIs, suggesting that higher TFP levels attract more investment in energy transitions. These findings provide insights for policymakers on the impact of ETIs on CE and aid in formulating effective policies to achieve net-zero emissions.