The role of environmental taxes on carbon emissions in countries aiming for net-zero carbon emissions: Does renewable energy consumption matter?

Implementing or increasing environmental taxes and the improved availability of renewable energy are commonly assumed to be effective enabling interventions in transitioning to a low carbon economy and achieving net-zero emissions. The assumption ignores the possibility for interactions between environmental taxes, the ease of accessing renewable energy sources, and CE. The current study examined interactive effects of environmental taxes, renewable energy and CE in 51 economically developed and developing countries over the period 2006 to 2020 using spatial econometric and panel threshold models. Results suggest that environmental taxes and renewable energy consumption could mitigate CE in one country, while contributing to a transfer, or leakage, of CE to neighbouring jurisdictions. Moreover, a synergistic effect is evident in which the effectiveness of environmental taxes to reduce CE increases as the share of renewable energy in the total energy mix for a country also rises. These findings highlight the benefits of taking into account spatial interactions between environmental regulations, renewable energy availability and CE and of adopting a more regional approach to agreeing and attaining carbon neutrality targets.