Quantile Analysis of Economic Growth, Foreign Direct Investment, and Renewable Energy on CO2 Emissions in Brazil: Insights for Sustainable Development

Abstract

Brazil, as an emerging and newly industrialized nation, presents a complex dynamic between economic advancement and environmental sustainability. This study investigates the influence of coal consumption (COAL), gross domestic product (GDP), renewable energy (REN), and foreign direct investment (FDI) on CO2 emissions in Brazil using quarterly data from 1990Q1 to 2020Q4. Employing the Quantile-on-Quantile Kernel-Based Regularized Least Squares (QQKRLS) method and the Quantile-on-Quantile Granger Causality (QQGC) test, we uncover significant nonlinear and distributional heterogeneities in these relationships. Results show that COAL, GDP, and FDI consistently exert a positive impact on CO2 emissions across most quantiles, whereas REN significantly reduces emissions, particularly at the upper emission quantiles. Causality analysis confirms that all four variables are significant predictors of CO2 emissions. The study contributes methodologically by applying QQKRLS and QQGC to reveal nuanced interactions across the emissions distribution—an advancement over traditional linear approaches. Empirically, it provides Brazil-specific evidence of the dual role of FDI and economic growth in both driving emissions and offering potential for sustainable transition. Based on these findings, we recommend policies that prioritize sector-specific FDI screening to promote green technologies, accelerate investment in renewable energy infrastructure, and impose adaptive carbon pricing mechanisms that reflect the heterogeneous impact of coal and economic growth on emissions. These insights support Brazil’s climate targets and guide a balanced path toward inclusive and sustainable development.