Carbon neutrality in emerging economies using a nonlinear panel NARDL approach

Abstract

This paper explores the asymmetrical effects of economic growth, energy consumption, urbanization, and ecology on the emission of CO2 in the growing economies and has a direct correlation to the issue of carbon-neutral transition. The authors utilize balanced annual data of 1990–2022 of four major emerging emitters, namely, India, Brazil, Indonesia and South Africa. The choice of these countries lies in their similar structural transition issues, especially as they are all encountering the rapid urbanization process, the electricity systems relying on fossil fuels and the growing ecological pressure as opposed to regional similarity. We utilize a nonlinear panel NARDL model that is the Pooled Mean Group (PMG) and Mean Group (MG) estimators to analyse heterogeneous short and long-run dynamics. The Sustainable Transition Asymmetry Framework (STAF) uses the assumptions of the Environmental Kuznets Curve (EKC), the Ecological Modernization Theory (EMT), and the carbon sink hypothesis to explain how asymmetric transition pathways may be interpreted. The findings reveal that positive and negative income shocks have an asymmetric impact on the emissions, which points to the presence of conditional and shock-dependent decoupling trends, as opposed to the formal test of the conventional inverted U-shaped EKC. The use of renewable energy always reduces emissions, which contributes to the EMT, but the use of electricity, which is predominantly composed of fossil fuels, worsens emissions, which proves the energy-CO2 nexus. Emissions are diminished by forest expansion, in favor of the carbon sink hypothesis, and less pronounced and more dispersed effects are found with losses of forests. Urbanization exhibits model-specific effects, which indicate the variation in developmental path and infrastructure dynamics in various countries. The tests of model selection prefer the use of the MG estimator, which highlights the existence of significant cross-country heterogeneity. The policy implications include the necessity to speed up the use of renewable energy resources, decarbonize the electricity supply, encourage sustainable urban development, and preserve forests as supplementary measures to low-carbon transitions. This research paper can add both theoretical and empirical contributions to the literature on carbon neutrality of emerging economies, as it incorporates economic, energy and ecological aspects.