Heterogeneous analysis of pollution abatement via renewable and non-renewable energy: lessons from investment in G20 nations

Environmental sustainability and climate change mitigation seem central in the fight against global warming and continuous human sustenance in the twenty-first century. However, non-renewable and renewable energy are at the core of these pollution concerns, particularly among the G20 economies that are the top pollution emitters. Capital investment has been argued to ameliorate or amplify the relationship, unlike other mediators in the energy-pollution nexus. To this end, the study specifically sets out to unravel the mediating role of capital investment in energy-pollution link together with other pollution confounders, including trade openness, foreign direct investment, and energy use for G20 economies over the period 1990–2017. We report vital findings using the pooled mean group estimator and accounting for cross-sectional dependence and heterogeneity among the countries. First, results show that renewable energy negatively impacts carbon emissions in both the short and long runs, while non-renewable energy positively impacts pollution. In addition, the results show that capital investment lowers pollution in the short run but increases it in the long run. Lastly, on interacting capital investment with renewable energy, we find that pollution falls in both the short and long runs, while its interaction with non-renewable energy expands pollution in both periods. On the policy front, since capital investment provides an important channel to reduce pollution in G20 nations, it is therefore recommended that if energy consumption is to work through the capital investment channel to lower pollution in the G20, the proportion of renewable energy must increase relative to non-renewable energy in their energy mix.