Influence of fiscal decentralization and renewable energy investment on ecological sustainability in EU: What is the moderating role of institutional governance?

Rising environmental concerns are gaining much attention in the recent literature. However, the dynamic impact of fiscal decentralization and renewable energy investment has been reflected with little evidence. It is imper-ative to evaluate the role of these factors in a multivariate framework of foreign direct investment and institu-tional governance using selected European Union (EU) countries from 2000 to 2020. The study applied advanced-panel methods entitled Cross-sectional augmented autoregressive distributed lags (CS-ARDL) to esti-mate the long-run and short-run relationships among variables. The initial findings confirmed the interdepen-dence between the cross-sectional units, heterogeneity in the slope coefficients, and the existence of panel cointegration. The long-run and short-run results indicate that fiscal decentralization, institutional governance, and renewable energy investment significantly improved ecological sustainability. In contrast, foreign direct investment caused higher emissions, endorsing the pollution haven hypothesis in the region. The findings confirm a significant moderating role of institutional governance in the association between fiscal decentral-ization, renewable energy investments, and carbon emission. These findings suggest that combining the impact of governance structure with renewable energy investment and fiscal decentralization offers more substantial effects in terms of optimal renewable energy transition and high regional autonomy.