Toward fostering environmental innovation in OECD countries: Do fiscal decentralization, carbon pricing, and renewable energy investments matter?

Abstract

Environmental innovation is an integral part of sustainable development goal (SDG) 9. It also provides the foundation for green energy production, and thus, indirectly supports the accomplishment of SDG 7. Notably, the energy transition from fossil fuel to renewables is critical for achieving sustainable development and a cleaner environment. Therefore, this study explores the major driving forces of environmental innovation in 29 OECD countries from 1993 to 2019 by incorporating environmental taxation, carbon pricing policy, budget for renewable energy development and demonstration, regional authority, financial development, and globalization. The recently proposed Quantile via Movements methodology is employed to address the spiral dependence of explanatory variables and obtain results at different quantiles. The findings of Quantile via movements reveal that enhancing environmental taxation and strengthening carbon pricing policies encourage environmental innovation. Moreover, these countries should decentralize policymaking and delegate authority to regions. Alongside this, policymaking for Encouraging private sector budgets for renewable energy development and demonstration is necessary. The stringent policy regulations at the regional level can enhance the innovation of domestic industries concerning the development, adoption, and commercial competitiveness of environment-friendly technologies. Furthermore, the financial sector’s development enhances environmental innovation, while globalization needs to be properly regulated.