Financing or taxation? Assessing the effectiveness of carbon emissions reduction programs

Carbon emissions are of significant concern, as they pose a growing threat to the integrity of ecological systems. This paper investigates the effectiveness of consumption-based carbon emissions reduction programs. We use an innovative quantile panel regression methodology as well as a comprehensive preliminary analysis and robustness analysis with a sample of 38 member countries of the Organization for Economic Cooperation and Development (OECD). Our empirical findings demonstrate that output and foreign trade have a significant impact on carbon emissions, thus supporting the trade-extended environmental Kuznets curve. Furthermore, environmental taxes and green finance play a pivotal role in mitigating carbon emissions, and the latter emerges as a particularly effective policy instrument. The sector-and product-specific determination of environmental taxes, coupled with the strategic channeling of green finance to clean and renewable energy sources and production processes, will catalyze advancements in environmental sustainability.