Moderating Effect of Financial Development on the Relationship between Renewable Energy and Carbon Emissions

Abstract

This study investigates the moderating effect of financial development on the renewable energy–CO2 emissions nexus in OECD countries. We find that both composite financial development and banking sector development have an inverted U-shaped impact on CO2 emissions, while stock market development has a U-shaped impact on CO2 emissions. Further, an increase in renewable energy will reduce CO2 emissions, and this reducing impact is affected by different levels of financial development. When promoting financial development, policymakers should pay more attention to its role in enhancing renewable energy, which is related to emissions reduction.