Assessing the spillover effects of research and development and renewable energy on CO ₂ emissions: international evidence

Abstract

The primary motivation of this paper is the lack of consensus on the impact of renewable energy (RE) and research and development (R&D) expenditure on CO ₂ emissions in the literature. Current literature has mostly ignored the spillover effect of R&D on CO ₂ emissions by increasing the intensity effect of technology, leading to biased results. Further, little is known about the impact of previous epidemics on CO ₂ emissions. This study fills these gaps by evaluating the spillover effects of RE and R&D on CO ₂ emissions in a global panel of 54 countries from 2003 to 2017. Using a two-way time- and spatial-fixed-effects panel analysis, we find both income-induced and scale effects of economic growth are present in our panel, though the scale effect is the dominant one. Our findings indicate that economic growth increases CO ₂ emissions at a decreasing rate, validating the Environmental Kuznets Curve hypothesis, and that urbanization and foreign trade worsen the environment. We also find that epidemic episodes before COVID-19 had a nonsignificant impact on CO ₂ emissions internationally. More importantly, our results confirm the presence of both the intensity and scale effects of R&D, with the intensity effect being the dominant one. We find overwhelming evidence that global R&D investment led to an overall (direct plus spillover) reduction of CO ₂ emissions, driven by its spillover effect, through two channels: RE and economic growth. Finally, we find that RE installations assist with reducing CO ₂ emissions internationally, though RE composition and state of R&D can lead to different findings. Our findings have significant policy implications for sustainable development. Our RE and R&D-spillover results support the policy recommendation of shifting to high-tech clean energy sources.