Beyond one-size-fits-all: Paradoxes in environmental fiscal policy and renewable energy impacts on ASEAN CO2 emissions.

This study examines the effect of environmental protection tax and expense policies, renewable energy, and energy efficiency on carbon emissions among the Association of Southeast Asian Nations (ASEAN). The study aims to establish the optimum level of interaction between policy and practical energy issues that influence economic growth and environmental sustainability in the ASEAN region. Using panel data spanning from 2000 to 2020 on 8 of the 10 ASEAN members, this study employed three advanced modelling techniques: Cross-sectional Auto-regressive Distributed Lags (CS-ARDL), Augmented Mean Group (AMG), and Common Correlated Effects Mean Group (CCEMG). Across the models, the results found a common significant positive effect of environmental expenditure on carbon emission, highlighting the efficiency of government ecological expenditure on sustainability in the region. Interestingly, environmental tax was found to exhibit a negative effect on CO2 emission, signalling a paradox in the hailing of taxes as an instrument of environmental sustainability. The findings revealed that very low environmental expenditure levels are associated with high emissions. Similarly, moderate environmental tax levels are related to moderate-to-high CO2 emissions. While renewable energy demonstrates a considerable positive impact on CO2 emissions, energy efficiency exhibits a less negative effect on CO2 emissions. These results imply that, though the statistical models show a long-term reduction effect, the actual implementation may still be too weak to produce immediate emission reductions, and the observed tax levels in ASEAN may not be strict enough. Similarly, long-term results further validate renewable energy's capacity to reduce emissions, even though it initially corresponds with higher emissions, which can be attributed to infrastructure development and transition lag. The results highlight the intersection and paradoxes of policy and practice, underscoring the need for re-routing governmental environmental policies, especially environmental tax policies. With this, ASEAN member states may need to consider the unique economic and ecological contexts of the different countries to achieve a uniform success level in environmental sustainability.