Does environmental taxes achieve the carbon neutrality target of G7 economies? Evaluating the importance of environmental R&D

Abstract

The present study highlights the importance of environmental taxes and R&D in achieving the goal of carbon neutrality. Post Paris conference (COP21), countries set domestic targets to achieve zero carbon or carbon neutrality. Several studies have been conducted to explore the factors affecting environmental quality. However, the literature on the importance of environmental taxes and environmental R&D in affecting environmental quality is scant, and thus, this study investigates the impact of environmental taxes and R&D on consumption-based carbon emissions for G-7 countries over a period of 1990-2019. The cointegration test results show a stable long-run association between environmental taxes, environmental R&D, imports, exports, GDP, and consumption-based CO₂ emissions. The results show that in the short- and long-run, environmental taxes, environmental R&D, and exports significantly reduce carbon emissions, whereas GDP and imports significantly enhance carbon emissions. The Dumitrescu and Hurlin Granger causality test results show that any policy that targets environmental taxes, environmental R&D, exports, imports, and GDP significantly changes CO₂ emissions. This study recommends that policymakers in G-7 countries should focus on environmental R&D and taxes to achieve the goal of carbon neutrality.

Keywords: Carbon neutrality; Environmental R&D; Environmental taxes; G-7 countries; Trade.