BALANCING ECONOMIC GROWTH AND ENVIRONMENTAL MANAGEMENT: THE ROLE OF CO2 EFFICIENCY AND RENEWABLE ENERGY IN THE EU

This study addresses the critical challenge of balancing economic growth with environmental management by examining the role of CO2 efficiency and renewable energy consumption in sustainable economic development across European Union (EU) countries. The aim is to assess how these factors contribute to achieving sustainable economic growth while providing practical policy recommendations for managing the transition towards carbon neutrality by 2050. Employing panel data from 2002 to 2023, the study utilizes a Random Effects (RE) model and ARDL (Auto-Regressive Distributed Lag) analysis, integrating Mean Group (MG) and Dynamic Fixed Effects (DFE) estimators to evaluate short-run and long-run dynamics. The results show that CO2 efficiency significantly enhances economic growth, highlighting the crucial importance of managing carbon efficiency for sustainable development. However, the impact of renewable energy on economic growth is deemed statistically insignificant in the DFE estimations, suggesting potential obstacles to effective deployment. The novelty of this study lies in its incorporation of CO2 efficiency into the economic growth model as a key management factor, offering fresh insights into the interaction between economic and environmental variables within the EU context. The findings establish a basis for policymakers to prioritize enhancements in CO2 efficiency while also optimizing investments in renewable energy to effectively harmonize economic and environmental goals.