CO2 Emissions Mitigation in ASEAN Countries: The Role of Renewable Energy Use and Financial Development

Abstract

The nations comprising the Association of Southeast Asian Nations (ASEAN) face a pressing need to enhance environmental sustainability, given their substantial reliance on fossil fuels, contributing to 5.2% of global CO2 emissions. Thus, understanding the pivotal role of renewable energy in this context is paramount. This research employs a panel vector autoregression method to analyze the interplay of financial development, renewable energy, and CO2 emissions across ASEAN nations from 1990 to 2020. Findings reveal that while renewable energy consumption shows an insignificant impact on carbon emissions, financial development, and economic growth significantly and positively influence emissions. Conversely, labor exhibits a notable negative correlation with CO2 emissions. Moreover, a bidirectional relationship exists between financial development and economic growth, as well as between labor and GDP. Additionally, unidirectional links are observed from capital formation to CO2 emissions, from renewable energy utilization to fossil fuel dependency, and from renewable energy usage to capital formation. These outcomes underscore the inadequacy of current financial systems in fostering environmental sustainability, highlighting the urgent need for integrating environmental considerations into their operations.