The path to sustainable development: Examining the contribution of financial development to renewable energy and carbon emissions in G20 economies

Over the last 50 years, energy consumption‎ has increased significantly. Historically, the reliance on fossil fuels has facilitated rapid industrialization and technological advancement; however, it has also led to significant environmental challenges, notably the increase in CO2 emissions contributing to global climate change. In this context, the shift towards renewable energy sources has emerged as a strategy for mitigating environmental degradation and promoting sustainable development. This study examines the impact of financial development on renewable energy consumption (REC) and CO2 emissions in G20 countries over the period 1999-2022. The factors influencing renewable energy consumption and CO2 emissions have been identified as financial development (FD), inflation (INF), gross domestic product (GDP), traded stocks (TS), and foreign direct investment (FDI). Using a comprehensive panel data set, random/fixed effects models were applied to analyse the interaction between financial development, renewable energy consumption, and carbon dioxide emissions. The findings reveal that advancements in financial systems enhance the competitiveness of renewable energy consumption relative to fossil fuel alternatives. GDP has a negative impact on both renewable energy consumption and CO2 emissions. Inflation negatively affects REC, while it has no impact on CO2 emissions. Contrary to expectations, FDI does not have an impact on REC and CO2 emissions. Additionally, TS does not have a direct impact on either REC or CO2 emissions. This study contributes to the literature by demonstrating the benefits of financial development for both economic and environmental goals. Keywords: CO2 emissions, Financial development, G20 countries, Panel data analysis Renewable energy consumption