Exploring the Role of Green Finance in Climate Variability Mitigation: Emphasizing Renewable Energy Investments and Trade Openness

Abstract

The increasing emphasis on green finance as a critical tool to mitigate climate change highlights the need to understand its impact on carbon emissions, especially within emerging markets. This study aims to develop a comprehensive model that explores the relationship between green finance investments and carbon emissions, with a particular focus on the moderating roles of renewable energy investments and trade openness. To achieve this objective, a conceptual framework was proposed, suggesting that green finance investments are the primary driver of reduced carbon emissions, moderated by the levels of renewable energy investments and trade openness in the emerging market context. Data for this study was collected from 19 emerging market countries identified by the International Monetary Fund (IMF) over an eleven-year period (2012-2022). Using secondary data sources such as the World Development Indicator (WDI) and the International Renewable Energy Agency (IRENA). The results indicate that green finance investments significantly reduce carbon emissions, particularly when trade openness is considered as a moderating factor. However, the moderating effect of renewable energy investments on the relationship between green finance and carbon emissions was found to be insignificant. The study confirms the proposed model, showing that green finance investments are crucial in reducing carbon emissions, but their effectiveness can be significantly influenced by trade policies. Given the pivotal role of green finance in addressing climate change, this study underscores the need for policymakers in emerging markets to not only promote green finance and renewable energy investments but also to craft trade policies that enhance the efficacy of these investments. This study provides both theoretical contributions and practical insights into the interplay between green finance, renewable energy, trade openness, and carbon emissions, offering a comprehensive understanding necessary for sustainable development in emerging markets.