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UK’s net-zero carbon emissions target: Investigating the potential role of economic growth, financial development, and R&D expenditures based on historical data (1870 - 2017)

Muhammad Shahbaz (), Muhammad Ali Nasir (), Erik Hille () and Mantu Kumar

MPRA Paper from University Library of Munich, Germany

Abstract: The 4th industrial revolution and global decarbonisation are frequently referred to as two, interrelated megatrends. In particular, the former, technological revolution is expected to fundamentally change the economy, society, and financial systems, and may also create opportunities towards a zero-carbon future. Therefore, in the presence of the UK’s legally binding commitment to achieve a net-zero emissions target by 2050, we analyse the role of economic growth, R&D expenditures, financial development, and energy consumption in causing carbon dioxide (CO2) emissions. Our analysis is based on historical annual data from 1870 to 2017, thereby employing the bootstrapping bounds testing approach to examine short- and long-run relationships. The results suggest the existence of cointegration between CO2 emissions and its determinants. Financial development and energy consumption lead to environmental degradation, but R&D expenditures help reducing CO2 emissions. The estimated environmental effects of economic growth support the EKC hypothesis. While a U-shaped relationship is depicted between financial development and CO2 emissions, the nexus between R&D expenditures and CO2 emissions is analogues to the EKC. In the context of the efforts to tackle climate change, our findings suggest policy prescriptions by using financial development and R&D expenditures as key tools to meet the emissions target.

Keywords: CO2 Emissions; Economic Growth; Financial Development; R&D Expenditures; Net-zero Emissions (search for similar items in EconPapers)
JEL-codes: Q5 (search for similar items in EconPapers)
Date: 2020-07-10, Revised 2020-07-22
New Economics Papers: this item is included in nep-ene, nep-env and nep-fdg
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Journal Article: UK's net-zero carbon emissions target: Investigating the potential role of economic growth, financial development, and R&D expenditures based on historical data (1870–2017) (2020) Downloads
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