Effect of Green Investment, Renewable Energy Consumption, and Carbon Tax Policies on Ecological Sustainability: Evidence from ASEAN Countries

Abstract

In this study, the implications of green investment, renewable energy consumption, and carbon tax policies on ecological sustainability in ASEAN countries for the period 2001-2024 are examined. The ecological footprint per person is the main indicator for environmental burden. The independent variables include carbon pricing (proxied by GDP deflator), renewable energy consumption and green investment proxied by domestic lending to the private sector as a percentage of GDP . The control variables used are digitalization (% of the population utilizing the internet) and foreign direct investment (FDI/GDP). We employ panel unit root tests (CIPS and CADF) to test for stationarity and the Westerlund cointegration test to test for the long-term relationship. The long run coefficients are estimated via Augmented Mean Group Estimator (AMG) and the Common Correlated Effects Mean Group Estimator (CCEMG) that take into account cross-sectional dependence and heterogeneous slopes. The results reveal that renewable energy use and green investment are significantly associated with environmental footprints, while carbon price moderates environmental degradation. Digitalization has a good influence on sustainability while FDI has a varying impact on sustainability depending on the absorptive capability of the host country. The findings have important policy implications for ASEAN officials engaged in the green transition process under the Paris Agreement and the regional sustainability agenda.