Unmasking the dark side: how does fossil fuel financing hurt the carbon neutrality targets?

Abstract

The significance of carbon neutrality objectives in global climate mitigation efforts cannot be underestimated. Fossil fuels are widely believed to be a major culprit behind global climate change, and top polluting economies are still heavily investing in fossil fuels. Thus, the success of global net zero emissions efforts relies heavily on the response of top polluting economies towards such efforts. In this context, this analysis examines the impact of fossil fuel subsidies on carbon neutrality in high-polluting economies. The results of our estimation techniques (2SLS and GMM) reveal that fossil fuel subsidies in total as well as financing of coal, petroleum and gas, hurt carbon neutrality targets in top polluting economies by increasing CO2 emissions. In addition, GDP, financial development, and financial globalization hurt carbon neutrality targets; however, technological development, trade openness, and research and development spending help achieve carbon neutrality targets in top polluting economies. Thus, we believe policymakers in top polluted economies should turn the funds away from fossil fuels to green fuels to support global carbon neutrality targets.