Navigating Environmental Concerns: Assessing the Influence of Renewable Electricity and Eco-Taxation on Environmental Sustainability Using Nonlinear Approaches

Abstract

Concerns about the increasing ecological harm caused by human activities have led to greater recognition of the need to address environmental degradation. Policymakers are implementing actions and strategies to alleviate the detrimental effects of climate-change-driven environmental degradation. One of the policy tools for internalizing the external costs of environmental degradation is eco-taxation, which provides incentives for businesses and individuals to adopt cleaner technologies. Investment in renewable energy has surged in solar and wind due to technological advancements, policy backing, and cost reductions. This study examines the long-term environmental effects of eco-taxation and renewable electricity in France between 1998 and 2020, utilizing a novel Fourier autoregressive distributed lag (NARDL) econometric model. The results indicate that eco-taxation and renewable electricity have nonlinear and asymmetric effects on the environmental sustainability of France. In terms of policy implications, these findings provide policymakers in France with nonlinear and asymmetric insights. The government could optimize eco-taxation design and revenue recycling by integrating its existing green budget approaches with mainstream climate objectives into all government spending and taxation, thereby ensuring policy consistency and preventing environmentally harmful subsidies. Additionally, France could accelerate and diversify renewable deployment by committing to higher renewable generation targets, given the positive nonlinear impact without a rebound effect, or investing in grid flexibility and interconnection through grid modernization, smart grids, and cross-border interconnections.