Is economic growth possible without environmental degradation? A panel quantile regression analysis of OECD countries within the framework of Tapio decoupling regions

The increase in production associated with industrialization, together with the continuously growing global population, has led to a rise in energy consumption. A large share of this energy demand is met by fossil fuels, which increases carbon dioxide (CO₂) emissions and results in environmental degradation. Economic growth thus tends to generate environmental pollution, disrupting the balance between economic development and the environment and potentially giving rise to irreversible consequences. Accordingly, decoupling economic growth from environmental pollution has emerged as a critical issue requiring careful consideration by both policymakers and researchers in pursuit of a sustainable future. The main objective of this study is to identify the direction of the effects of variables that may drive decoupling, such as namely economic growth, renewable energy consumption, the Human Development Index, environmental taxes, and foreign direct investment, on the decoupling of economic growth and CO₂ emissions across different decoupling regions, using the Tapio decoupling index. The analysis is based on data covering the period 1995–2023 for 38 OECD countries and employs the panel quantile regression method. The findings indicate that the relationship between economic growth and CO₂ emissions in OECD countries exhibits substantial cross-country heterogeneity. While the level of human development is found to weaken decoupling in Regions I and IV, renewable energy use and environmental taxes are shown to strengthen decoupling in Regions III (weak negative decoupling, recessive coupling, and recessive decoupling) and IV (strong decoupling). In addition, although foreign direct investment exerts a negative effect on decoupling elasticity across all regions, it strengthens decoupling in Regions I and IV. These findings suggest that achieving sustainable growth without inducing environmental degradation requires the effective implementation of renewable energy investments and environmental taxes, as well as the alignment of foreign direct investment with environmental standards. Moreover, rather than adopting a one-size-fits-all approach, implementing economic and environmental policies tailored to each country's specific decoupling region would lead to a healthier growth–emissions relationship.