Renewable energy and CO2 mitigation, revisiting institutional quality based on new evidence with the dynamic panel GMM model.

Air pollution is a major environmental concern that threatens the future of humanity and undermines efforts to achieve sustainable development through its impact on climate change. Aligning policies for environmental sustainability with those designed to improve institutional quality poses considerable challenges for policymakers. This study examines the relationships among energy consumption, the quality of institutions, and carbon dioxide emissions across 65 countries with total energy consumption above the global average from 2002 to 2022. This study applies a dynamic panel Generalized Method of Moments (GMM) estimator to address potential endogeneity. The per capita CO2 emissions are regarded as a dependent variable, and energy usage is represented by energy consumption per capita, while the average of the six Worldwide Governance Indicators (WGI) indices is utilized to measure institutional quality. The findings show that, while increased dependence on non-renewable energy raises CO2 emissions, both the use of renewable energy and the quality of institutions help reduce them. A 1 % increase in renewable energy usage corresponds to a reduction in CO2 emissions (0.033 %), while a similar increase in non-renewable energy usage results in an estimated 1.052 % rise in emissions. Improved institutional quality results in a notable decrease, and there is compelling evidence that it amplifies the beneficial effects of renewable energy on CO2 reduction. From a policy perspective, this evidence underscores that institutional quality is a critical subject, actively decreasing CO2 emissions and enhancing the positive effects of renewable energy use for emission reduction, while addressing the adverse impacts of the use of non-renewable energy.