Does governance quality moderate the impact of energy efficiency on CO2 emissions? A cross-country analysis

This article delves into the critical relationship between energy efficiency (EE) and CO2 emissions, with a particular focus on the moderating influence of governance quality. The study examines how improvements in EE can lead to reduced CO2 emissions, but also highlights the potential for rebound effects where increased efficiency might inadvertently boost energy consumption and emissions. The research underscores the pivotal role of strong governance in mitigating these rebound effects, ensuring that gains in EE translate into environmental benefits. Through a comprehensive analysis of 112 developed and developing countries over the period 1996 to 2020, the study employs dynamic OLS and system-GMM models to validate its findings. The results confirm the existence of rebound effects of EE in economies with weak institutional environments, while strong governance quality effectively curbs these effects. Additionally, the study supports the Environmental Kuznets Curve (EKC) theory, demonstrating that economic development initially increases CO2 emissions but eventually leads to improved environmental quality as income levels rise. The implications of these findings are significant for policymakers and researchers, emphasizing the need for robust governance structures to maximize the environmental benefits of energy efficiency initiatives. This article provides a detailed and insightful exploration of the complex interplay between energy efficiency, governance quality, and CO2 emissions, offering valuable insights for professionals in the energy and environmental sectors.