A multi-model analysis of the short-run and long-run effects of environmental taxes and renewable energy on decarbonization

This study examines the effectiveness of economic instruments in reducing carbon dioxide emissions in Organisation for Economic Co-operation and Development (OECD) countries. The focus is on renewable energy consumption and environmental taxation. Previous studies often report that both instruments reduce emissions. However, much of the literature relies on single econometric methods. This may overlook cross-country heterogeneity, cross-sectional dependence and dynamic adjustment effects. To address these limitations, this study applies a multi-model panel econometric framework using balanced OECD data from 2000 to 2022. Fixed effects, mean group, pooled mean group and common correlated effects estimators are employed. These methods allow the identification of both short-run and long-run relationships while accounting for unobserved common factors. The results show that renewable energy consumption consistently and significantly reduces carbon dioxide emissions across all model specifications. The effect is stronger in the long run. In contrast, environmental tax revenue shows weak and unstable effects that depend on model choice. Economic growth does not have a significant long-run impact on emissions. This suggests that efficiency gains and technological progress dominate scale effects in advanced economies. The findings highlight the importance of methodological robustness and support prioritizing renewable energy expansion over environmental taxation alone.