Impact of financial development on CO2 emissions: A comparative analysis of developing countries (D8) and developed countries (G8).

Financial development is one of the key drivers of rapid economic growth as well as CO2 emission in the environment. This study aims to investigate the casual links between financial development and CO2 emission in G8 and D8 countries for the time period from 1999 to 2013. We used PCA to develop financial development index from its five sub-components. Second-generation panel unit root tests are applied to check the stationary level and to tackle the presence of cross-sectional dependence in panels. The empirical results of PMG-panel ARDL technique show that financial development has significant and positive impact on carbon emission at a 1% statistical level in both panels in the long-run. The impact of financial development and energy consumption is more evident in D8 and G8 countries respectively. The energy use and trade openness affect positively while GDP significantly causes to decline the carbon emissions at 1% statistical level. The results of D-H causality test show that majority of the variables have one-way causality towards CO2emission in both panels except the financial development and energy use having two-way causality in G8 panel only. The empirical findings of the present study suggest that through improved financial system, more funds should be invested in clean energy projects to adopt the renewable energy, strict monetary policies should be implemented to reduce the consumption of big ticket items, and adoption of measure to reduce trade embodied emission is suggested.

Sharing the costs and benefits of climate change mitigation via Shapley value.

This paper examines the free rider problem that exists in the joint effort to mitigate climate change. There is a need to develop a model that is stable and that provides evidence of an objective burden sharing rule so that the environmental agreement is more acceptable. This study approaches this problem via a cooperative game at the global level to make International Environmental Agreements (IEA) more stable. For this purpose, we apply the Shapley value transfer mechanism and find that under the commitment scenario, some regions attain the maximum benefits by joining the coalition. Shapley value transfer improves the coalition size and increases the global benefits at a certain level of abatement under perfect cooperation. Imperfect cooperation leads to lower levels of global benefits. Our findings offer new implications on how to improve the international cooperation for climate change. Commitments by major regions could activate the IEA (e.g., Paris agreement) efficiently. For the maximum global response to climate change, the national governments must reformulate and implement policies to meet their intended nationally determined contributions (INDCs). The results of this study also help the national governments to set their implementation priorities to implement the Paris Accord at global level.