Greening the Wheels: The Role of Innovation and Renewable Energy in Reducing Transport Emissions

Abstract

This study examines the determinants of transport-sector carbon dioxide (CO₂) emissions across 70 countries, equally divided between upper-middle-income (UMICs) and lower-middle-income (LMICs), over the period 2000–2023. Using the Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model, the analysis explores the long-run and short-run effects of environmental tax, technological innovation, renewable energy consumption, globalization, and global oil prices on transport CO₂ emissions. The results reveal that environmental tax and renewable energy consumption significantly mitigate transport-related CO₂ emissions in both income groups, underscoring their role in sustainable decarbonization. Technological innovation also exerts a long-term negative impact on emissions, highlighting its contribution to cleaner mobility. Interestingly, global oil prices are found to have a negative effect on transport emissions, implying that higher oil prices may discourage fuel-intensive transport activities. Moreover, globalization exhibits a dual pattern reducing emissions in UMICs through advanced technology transfer and efficient trade systems, but intensifying emissions in LMICs due to increased industrialization and transport demand. The Westerlund cointegration test confirms a stable long-run equilibrium among variables. Overall, the findings support the Environmental Kuznets Curve (EKC) hypothesis and emphasize the importance of differentiated policy approaches that consider income-level heterogeneity. Policymakers should focus on strengthening environmental taxes, enhancing renewable energy infrastructure, and promoting technological innovation to achieve transport-sector decarbonization and global sustainability goals.