Financial Development's Role in Reducing the Ecological Footprint of Energy Consumption in BRICS

Abstract

ABSTRACTThis study examines the relationship between energy consumption and environmental degradation in BRICS countries from 1995 to 2022, focusing on how financial development moderates this relationship. The key objective is to explore the potential of financial development to mitigate the adverse environmental impacts of energy consumption, mainly through promoting cleaner energy alternatives and improving energy efficiency. To achieve this, the study employs Driscoll‐–Kraay fixed‐effects and bootstrap panel quantile regression methods to account for cross‐sectional dependence and capture heterogeneous effects across different quantiles of energy consumption. The findings indicate that energy consumption significantly exacerbates environmental degradation, but financial development can reduce these adverse effects, especially at lower energy consumption levels. However, at higher levels of energy use, the mitigating impact of financial development diminishes. These results contribute to achieving Sustainable Development Goals 7 (Affordable and Clean Energy) and 13 (Climate Action), providing valuable insights for policymakers. Based on these findings, the study recommends a dual approach that emphasizes strengthening financial systems while promoting energy efficiency and adopting renewable energy to foster a more sustainable future. The findings also highlight the need for international cooperation and knowledge sharing to improve environmental outcomes across BRICS countries.