Net-zero transitions: Advancing dynamic econometric analysis of carbon tax, renewable energy, and circular economy on government actions

Delayed government action is driving society towards a climate disaster. Without urgent and coordinated efforts to achieve net-zero emissions, the frequency and severity of wildfires, floods, and droughts will continue to escalate. Despite the increase in net-zero commitments, many governments still lack clear policies and decisive leadership, weakening initiatives and threatening a sustainable future for generations to come. This study examines the role of carbon taxes, renewable energy, and circular economy practices in shaping effective government actions and policies. Our empirical approach employs advanced econometric methods, integrating time- series analysis and dynamic modelling. We begin by analysing the behaviour of the data using time-series methods, followed by the application of standard panel specifications, including Pooled Ordinary Least Squares (POLS), fixed effects, Roger panel regression, White panel regression, and Driscoll-Kraay standard errors. To investigate both long- and short-term relationships, we employ Generalized Method of Moments (GMM) dynamic analysis, incorporating the augmented Arellano-Bond, Ahn-Schmidt, Arellano-Bond, and ArellanoBover/Blundell-Bond estimators. Additionally, we use the TL-moment-adapted Machado-Silva Quantile via Moment regression model to examine asymmetric distribution patterns and heterogeneity across different data ranges. To enhance predictive accuracy, properly control for endogeneity, and correct potential cross-panel correlations, we apply alternative and complementary approaches, including the combined Balestra-Nerlove (BN) and Hausman-Taylor models, as well as the Feasible Generalized Least Squares (FGLS) estimator. Our findings underscore the lasting influence of past policy decisions on current climate policy trajectories. Specifically, while carbon taxes can sometimes undermine regulatory efforts to reduce emissions, the adoption of circular economy practices significantly enhances the overall effectiveness of climate policies. Furthermore, our analysis highlights the complex relationship between climate uncertainty and carbon tax implementation, suggesting that policy stability is crucial for facilitating a successful transition to renewable energy sources.