Achieving carbon neutrality goal in European countries: the role of green technology innovation, renewable energy, and financial development

Carbon dioxide (CO2) emissions reduction in European countries has become an important topic with the implementation of national carbon neutrality objectives as part of the global agenda to halt climate change. The European Union (EU) has adopted sustainable finance and the "Green Deal" as a novel economic strategy and established intermediate goals for 2030 to ensure that consumed energy is generated from renewable sources to set the EU on the pathway to carbon neutrality. Herein, the study scrutinizes the impact of green technology innovation, renewable energy usage, and financial development on CO2 emissions in 21 European countries with human capital and gross domestic product (GDP) as control variables. The empirical results from cross-sectional autoregressive distributed lags model (CS-ARDL) reveal that green technology innovation, human capital, and renewable energy usage mitigate CO2 emissions. Financial development and GDP heighten CO2 emissions. The causality test reveal a two-way causal affiliation among green technology innovation, renewable energy usage, financial development, human capital, and CO2 emissions and a one-way causal link from GDP to CO2 emissions. Also, results from the impulse-response and variance decomposition analysis indicate that a decrease in CO2 emissions will be greatly aided by green technology innovation, usage of renewable energy, and human capital, whereas financial development and GDP will show higher variations of CO2 emissions in the next decade. Policies are further suggested for achieving carbon neutrality based on the findings.