Financing the Green Transition: How Green Finance and Renewable Energy Drive CO 2 Mitigation

Manal Elhaj, Fatma Mabrouk () and Layan Alotaibi
Additional contact information
Manal Elhaj: Department of Economics, College of Business Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia
Fatma Mabrouk: Department of Economics, College of Business Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia
Layan Alotaibi: Department of Economics, College of Business Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia

Energies, 2025, vol. 18, issue 21, 1-18

Abstract: The accelerating demand for climate action has underscored the need to link financial innovation with clean energy adoption. This study examines the interplay between green finance, renewable energy consumption, and CO 2 emissions across 15 countries from 2013 to 2022. Green finance is proxied by green bond issuances and environmental protection expenditures, capturing both market-based and fiscal flows. Using panel econometric methods, including fixed effects with Driscoll–Kraay corrections, Prais–Winsten regressions with PCSE, and Feasible Generalized Least Squares (FGLS), the analysis accounts for heteroscedasticity, autocorrelation, and cross-sectional dependence. Results show how green finance significantly reduces emissions, both directly and indirectly, through its positive influence on renewable energy deployment. Renewable energy consumption shows a robust negative association with CO 2 emissions, confirming its pivotal role in energy transition. A mediation analysis further demonstrates that renewable energy partially transmits the effect of green finance on environmental performance. The findings highlight the dual function of green finance in mobilizing investment and accelerating decarbonization, offering timely insights for policymakers seeking effective pathways toward sustainable, low-carbon economies.

Keywords: green finance; renewable energy transition; carbon dioxide ( CO 2 ) emissions; panel data econometrics; climate finance and policy; environmental economics; Sustainable Development Goals (SDGs) (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1996-1073/18/21/5563/pdf (application/pdf)
https://www.mdpi.com/1996-1073/18/21/5563/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:18:y:2025:i:21:p:5563-:d:1777163

Access Statistics for this article

Energies is currently edited by Ms. Cassie Shen

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().