The Role of Fiscal Decentralization in Limiting CO2 Emissions in South Africa

Fiscal decentralization determines government behavior considerably by being a major factor influencing South Africa’s carbon emissions. We analyze the impact of fiscal decentralization on carbon emissions on the basis of the dataset of South Africa for the period 1960 to 2020. Using the novel dynamic ARDL simulations model, we reveal that fiscal decentralization has a CO2 emissions reduction impact in both the short and long run, highlighting the presence of the race to the top approach. The findings suggest that, in order to maintain South Africa’s ecological sustainability, further fiscal decentralization should be undertaken through further devolution of power to local entities, particularly in terms of environmental policy issues. In an effort to fulfill the energy-saving functions of fiscal expenditures, South Africa should also establish policies to improve environmental sustainability by strengthening a lower layer of government and clarifying responsibilities at the national and local levels.