International trade and consumption-based carbon emissions: evaluating the role of composite risk for RCEP economies

Abstract

To tackle the issue of climate change and environmental degradation debates regarding carbon neutrality is on the rise. Regional Comprehensive Economic Cooperation (RCEP), the leading trading union, covers nearly third of global economy, world population, is responsible for thirty percent of global trade and global gross domestic product. The existent study tests the impact of financial, economic, political, and composite risk on consumption-based carbon dioxide emissions (CCO₂) in selected RCEP economies during the period of 1990 to 2020. The empirical analysis consists of cross-sectional dependence, slope heterogeneity, cross-sectional augmented panel unit root test, Westerlund cointegration, second-generation cross-section augmented autoregressive distributed lags model (CS-ARDL), and panel causality test. Further, we explore the role of imports, renewable energy supply, exports, and gross domestic product per-capita on CCO₂. The empirical results suggest that the less political risk help to mitigate while the lower financial, economic, and composite risk increase CCO₂ emissions in selected RCEP economies. Moreover, exports and renewable energy supply show mitigating effect, whereas imports show upsurge in CCO₂. Additionally, a bidirectional causality exists between exports and CCO₂, imports and CCO₂, GDP per-capita and CCO₂, political risk and CCO₂, and renewable energy and CCO₂ emissions, while a one-way causality from financial risk, composite risk, and economic risk to CCO₂. Renewable energy supplies along with the improvement in sub-components of political risk, for instance, corruption, government stability, would help to effectively tackle the issue of CCO₂ emissions.

Keywords: CS-ARDL technique; Consumption-based carbon emissions; Economic risk; Exports; Imports; Regional Comprehensive Economic Cooperation; Renewable energy supply.