How energy vulnerability impacts C02 emissions, with the moderating effect of financial development

Abstract

This paper examines the impact of energy vulnerability on CO₂ emissions while accounting for the moderating effect of financial development and the mediating effect of electricity access. With panel data from 102 countries spanning 2000–2019, the analysis employs dynamic panel econometric models, including the System Generalized Method of Moments (Sys-GMM), to address endogeneity and heterogeneity. Results reveal a significant positive relationship between energy vulnerability and CO₂ emissions. Financial development is found to mitigate this relationship, it acts as a moderator that reduces the adverse environmental impact of energy vulnerability. Conversely, the analysis of electricity access indicates the mediation of the relationship, where improved access correlates with higher emissions, underscoring the need for cleaner energy transitions. The study validates the Environmental Kuznets Curve (EKC) hypothesis, highlighting that economic growth initially exacerbates emissions but eventually reduces them at higher income levels. These findings contribute to the literature by systematically integrating financial development, and electricity access into the energy vulnerability–CO₂ nexus, offering actionable insights for sustainable energy transitions globally