Renewable energy consumption, carbon dioxide emission and financial stability: does institutional quality matter?

Abstract

In the context that countries around the world are making efforts to reduce carbon emissions and promote the use of renewable energy, the impact of these issues on the economy is becoming more and more concerned. Our study investigates the impact of renewable energy consumption and carbon dioxide emissions on financial stability and the role of institutional quality in mitigating these effects. Using panel data from 147 countries, including both developed and developing countries, and applying the quantile regression method, this study found that both renewable energy consumption and carbon dioxide emissions reduce financial stability. Moreover, the negative effects of carbon dioxide emissions on financial stability intensify in countries with higher financial stability. Additionally, institutional quality was found to play an important role in mitigating the negative impacts of renewable energy consumption and carbon dioxide emissions on financial stability, especially in countries with high levels of financial stability; the impact was insignificant in developing countries with low levels of financial stability. Our results can be useful for regulators in both developed and developing countries to control the negative impacts of carbon emission reduction and renewable energy policies on financial stability.