The effect of clean energy investment on CO2 emissions: Insights from a Spatial Durbin Model

Abstract

We estimate the direct and indirect effects of clean energy investment on carbon emissions using a Spatial Durbin Model fitted to a panel of 72 countries from 2000 to 2018. We find that a 1 percent increase in domestic clean energy investment reduces domestic carbon emissions by approximately 0.05 percent on average, controlling for country characteristics. However, this benefit is offset by a carbon leakage effect, whereby a 1 percent increase in clean energy investment among neighboring countries leads to about a 0.28 percent increase in domestic carbon emissions. This is suggestive of the outsourcing of pollution from one country to another and indicates that ad hoc policies to promote cl..