Analysing the Dynamic Interplay Between CO₂ Emissions, Economic Growth, and Power Sector Transitions Towards Green Energy Within Sustainable Development Frameworks

This research explores the multifaceted relationships among carbon dioxide (CO₂) emissions, economic development, renewable energy deployment, and trade openness across OECD countries from 1995 to 2020. Utilizing the Panel Vector Autoregressive (PVAR) framework alongside Granger causality testing, the study examines directional influences among these variables, with particular attention to the evolving dynamics of the power sector. The analysis incorporates impulseresponse functions to trace the temporal effects of shifts in power generation, economic indicators, and trade liberalization on emission patterns. A variance decomposition technique is employed to assess the relative contribution of each factor to fluctuations in CO₂ emissions.

The findings highlight that earlier levels of renewable power consumption and lagged indicators of trade openness tend to exert a mitigating effect on CO₂ emissions, suggesting that transitions in power sourcing and global trade integration play a constructive role in environmental outcomes. In contrast, economic growth metrics, particularly those tied to GDP, appear to have only a limited direct influence on emission trends. Granger causality results reveal a unidirectional predictive link, wherein economic expansion, renewable power adoption, and trade openness precede changes in CO₂ emissions. However, the overall interdependence among these variables remains modest, indicating a need for more cohesive and integrated policy approaches.

These insights offer valuable implications for policymakers and energy strategists seeking to design climate finance instruments and sustainable investment models that prioritize low-carbon power transitions. Future research could enhance this foundation by incorporating institutional quality, governance structures, and socio-demographic variables, thereby deepening the understanding of sustainable development pathways and the role of power systems in shaping them.