1. Introduction
Climate change has become a major problem in recent decades, owing to the environmental risks it poses [
1]. Furthermore, the issue of climate change is related to continuous energy usage, increase in population, and human conduct [
2]. In light of this, the global attempt to counteract climate change and its catastrophic implications should adopt an all-hands-on-board mentality to ensure a massive effect. As a result, an effective attempt would require worldwide cooperation among emerging and developing countries via technology, financial assistance, research, and information exchange [
3].
Systematic assessments of human–nature dynamics are spurred by anthropogenic activities, greenhouse gas (GHGs), and the resultant climatic conditions. As a result, industrial expansion is frequently blamed for degrading the environment. Thus, the connection between CO2 emissions, energy consumption, and economic growth is a hotly disputed subject in environmental economics. This study recommends a rethinking of the aforementioned connection of the Gulf Cooperation Council (Bahrain, Qatar, Oman, Kuwait, and the United Arab Emirates) (GCC) countries. Assessing the drivers of increased carbon emissions and developing suitable reduction initiatives is important for all policymakers, but it is especially important for GCC member nations.
GCC nations are resource-rich and control about 19.8% of natural gas reserves globally [
4]. In essence, Qatar, the United Arab Emirates, and Saudi Arabia are among the largest emitters nations globally [
5]. Fossil fuels, a copious resource in the GCC, are the backbone of these states, which depend on proceeds from the export of fossil fuels to support industrial operations, which have a significant influence on the sustainable environment [
6]. Whereas renewable sources make up only a modest fraction of these nations’ energy basket, they are significantly reliant on fossil fuels. Furthermore, attributable to the growing populace, urban growth; energy usage; and economic expansion in this set of economies is soaring and continues to pose a severe threat to achieving a sustainable environment. These economies are responsible for 2.4% of GHG emissions globally, which is increasingly higher in comparison to European Union member states. As income soars and the demand for luxury products surges, GCC countries are anticipated to experience considerable growth in energy usage.
Recently, many experts have focused on financial development as a means of influencing a sustainable environment. Financial development (FD) is a significant factor that influences environmental degradation in a wide range of aspects. For example, financing from financial institutions can contribute to the growth of business, which can promote energy usage and land use. Financial institutions also facilitate citizens’ financial requirements, and an upsurge in spending capacity can boost resource usage, leading to more environmental damage. Meanwhile, financial institutions may stimulate technological advancement that decreases energy use and, thereby, minimizes environmental impact [
7]. Furthermore, financial institutions may be important in assisting efforts that may contribute to technological innovation, which is impossible to achieve without appropriate R&D investment. Recent research on the interaction between carbon emissions and financial development display conflicting findings. For example, the work of [
8,
9,
10], suggested that an increase in FD induces the level of CO
2 emissions, meanwhile, the research of [
11] emphasized the influence of FD in curbing CO
2 emissions. In contrast, “credit facilities” and “investment channels” provided by the associated financial system may provide a stimulating environment for the innovative work of minimal carbon sources of energy, provided that the financial development is linked with eco-friendly regulations and norms. This indicates that financial development might help to minimize environmental pollution by lowering carbon emissions. Furthermore, energy has been the major backbone of any economy that contributes to environmental degradation, however, constraints in technology advancement have compelled the use of obsolete technologies for generating energy. Providing financial resources for the purchase of updated technologies could help mitigate emissions generated into the atmosphere. We evaluated a couple of studies that concentrated on different points regarding CO
2 emissions in GCC economies; nonetheless, the basic question of how financial development effects degradation in GCC economies wants further investigation. Our study attempts to identify this significant demand by assessing the moderating role of “financial development” for various determinants of environmental degradation because financial development has an effect on environmental degradation in the same way that economic growth and urbanization do. Regardless of the premise that the majority of these studies employed an appropriate model for evaluation, they neglect to account for the stance of financial development moderating energy utilization. The question arising here is whether financial development plays a crucial role in energy utilization moving towards achieving a sustainable environment. Thus, this present study focuses on investigating the moderating role of financial development on energy utilization on CO
2 emissions in GCC nations, in which the study also employs energy usage, financial development, natural resources, and economic growth as independent variables.
Centered on many viewpoints from prior studies, it is suggested that natural resources, energy usage, FD, and economic growth possess a distinct influence on environmental degradation. GCC nations are currently challenged with rising financial development, as well as intensified energy usage, exploitations of natural resources, and GDP creating a significant environmental concern. This study contributes to the literature gap in the following way: (i) this current research could facilitate policymakers to adopt increasingly feasible planning and choice related to environmental mitigation overall, and specifically in GCC economies; (ii) in addition, the study aims to address a shortcoming in the empirical studies by using the method of moments quantile regression (MMQR), which can account for distributional heterogeneity. The estimated results will be extremely relevant and very profound for policymakers in the GCC economies; (iii) the combined impact of energy utilization and FD on CO2 emissions is also detected in this current research; (iv) the effect of these determinants of carbon emission is undertaken within the environmental Kuznets curve (EKC) framework. (v) The fixed effect ordinary least squares (FE-OLS), fully modified ordinary least squares (FMOLS), and dynamic ordinary least squares (DOLS) are employed to verify the accuracy of the MMQR outcome. The remaining part of the study is divided into sections; the second section includes a detailed analysis of prior studies, the third section of this study describes the method and data utilized, section four covers the research’s extensive and in-depth assessments, and section five contains the study’s conclusion and important policy suggestions.
2. Literature Review
As previously stated, this segment of the research presents a summary of the relevant research. A variety of investigations have been undertaken into the effect of energy usage and GDP on environmental degradation. The interaction between environmental degradation and energy usage is crucial to the economic expansion of any country. When a country’s economy is growing and developing, fossil fuels fulfill the bulk of energy needs, which are the major leading sources of environmental pollution due to carbon emission. It is characterized as a side effect, in which the undesirable effect on the environment contribute to a country’s growth economically. In such circumstances, policymakers need to acknowledge that the negative consequences of energy consumption and continual environmental awareness compel them not only to seek sustainable energy but regenerate them with minimal exposure to environmental protection. For instance, the Balsalobre-Lorente et al. [
12] study in BRICS economies utilized a dataset covering from 1990 to 2014 to investigate the interconnection between GDP and energy usage (EN) on CO
2 emissions. They suggested that GDP and EN increase CO
2 emissions. This verdict was also established in the He et al. [
13] investigation of ten selected economies, who unearth that the increase in ENE and GDP contributes to the upsurge in CO
2 emissions. Likewise, the work of Awosusi et al. [
14] in South Korea used the dataset for the period between 1965 and 2019 using the wavelets, ARDL, FMOLS, and DOLS testing approach and confirmed that GDP induces CO
2 emissions.
Meanwhile, employing a South Asian countries’ dataset spanning from 1970 to 2018, Sadiq et al. [
15] probed into the interaction between GDP, EN, and CO
2 emissions deploying the FMOLS approach. They reported that GDP and EN are major determinants that trigger the increase in CO
2 emissions. Similarly, in Brazil, the work of Odugbesan et al. [
16] investigated the connection between GDP and CO
2 emissions in the period from 1965–2019 and found that GDP add to the increase in CO
2 emissions. Furthermore, employing the dynamic ARDL approach by using Bangladesh’s dataset spanning between 1972 and 2016, the work of Islam et al. [
17] reported that the surge in GDP and EN induced CO
2 emissions. In a study on BRICS economies, Ojekemi et al. [
18] analyzed the influence of GDP on CO
2 emissions for the period between 1980 and 2019. They reported a positive correlation between GDP and CO
2 emissions. Meanwhile, in Saudi Arabia, the work of Raggad [
19] and Kahia et al. [
20] suggested that the increase in GDP decreases the level of CO
2 emissions. However, the work of Oladipupo et al. [
21] in Japan reported that EN and GDP deteriorate the environment. Furthermore, employing the WAME’s dataset spanning between 1990 and 2017, the work of Beton Kalmaz & Awosusi [
22] reported that the surge in GDP and EN induced environmental degradation.
Research Hypothesis 1 (H1): Research Hypothesis 2 (H2): Moreover, substantial research on the influence of financial development (FD) on environmental deterioration has shown conflicting results. For instance, utilizing a set of data from 1980 to 2017 and a panel of Latin American Nations, Ramzan et al. [
8] examined the drivers of environmental deterioration. Their findings show that GDP and EN increase CO
2 emissions. Furthermore, they concluded that FD does not influence CO
2 emissions. Meanwhile, the study of Xu et al. [
23] in Saudi Arabia concluded a different outcome using a dataset spanning between 1971 and 2016. They established that as FD continues to increase, the environment deteriorates over time in Saudi Arabia. Likewise, the work of Shehzad et al. [
9] in Pakistan uses the dataset of the period 1976 to 2018 using the NARDL approach. Their empirical outcome confirmed that FD induces CO
2 emissions. Abbasi et al. [
24] reported a similar outcome in Pakistan using a group of data spanning from 1990Q1 to 2019Q4. Utilizing the dataset that covers 2003 to 2018, the work of Sheraz et al. [
25] in 64 selected nations employing the two-system GMM approach suggested that an increase in FD stimulates the level of CO
2 emissions. Furthermore, Ahmad et al. [
26] examined the drivers of environmental deterioration in BRICS economies. Their findings concluded that FD positively influence CO
2 emissions. The research of Ahmed et al. [
27] reported that FD positively influence CO
2 emissions in Japan; similarly, as did the work of Ahmed et al. [
28] for United states and Ahmad et al. [
29] for 17 emerging countries. The study of Weili et al. [
10] suggested that an increase in FD induces the level of CO
2 emissions in BRI nations.
Conversely, utilizing the dataset that covers 1990–2017, Kirikkaleli et al. [
30] explored the interaction between CO
2 emissions and FD in Chile. They reported that FD helps in curbing the CO
2 emissions level in Chile. Similarly, within the global framework, the work of Kirikkaleli and Adebayo [
31] investigated the connection between FD and CO
2 emissions using a dataset ranging from 1985–2017 and disclose that FD curbs the level of CO
2 emissions. Furthermore, using the wavelets, FMOLS, and DOLS approach by using South Africa’s dataset spanning from 1980–2017, the study by Bekun et al. [
32] reported that the surge in FD mitigates CO
2 emissions in South Africa. In a study in Brazil, Akinsola et al. [
33] reported a negative interconnection between FD and environmental degradation using the period from 1983-2017. Furthermore, the work of Zoaka et al. [
11] emphasized the impact of FD to curb the level of CO
2 emissions.
Research Hypothesis 3 (H3): Several researchers have recently looked at the relationship between natural resources (NR) and CO
2 emissions but their findings have been ambiguous. For example, Awosusi et al. [
34] considered the connection between NR and environmental degradation and found that when NR rises, it causes the environmental quality to decline. Miao et al. [
35] explored the effect of NR on the environment with the dataset for the period between 1983 and 2017. They detected a positive connection between NR and environmental degradation. Furthermore, employing the dataset of Colombia spanning between 1970 and 2017, the study of Mata et al. [
36] reported that the surge in NR stimulates CO
2 emissions levels in Colombia. In a study of the G7 nations by [
37] using the panel dataset, which spans the timeline between 1990 and 2020, the findings exposed that as the natural resource rent surges, CO
2 emissions expands. Onifade et al. [
38] inspected the major driver of CO
2 emissions using the panel dataset of ten NICs, which spans the period between 1990 and 2018. Their findings revealed that NR increases CO
2 emissions. Furthermore, they established the evidence of the EKC hypothesis. The work of Awosusi et al. [
39] in Uruguay detected that the upsurge in natural resources intensifies CO
2 emissions. Conversely, using the panel dataset spanning from 1990–2018, the investigation of Tufail et al. [
40] in seven selected nations testified that the increase in NR curbs the level of degradation in the environment. Similarly, the work of Dada et al. [
41] in Nigeria detected that the upsurge in natural resources abates environmental degradation.
Research Hypothesis 4 (H4): Premised on the contradictory findings of the reviewed literature earlier in this section, more investigation is needed to elucidate the dynamic association between energy usage, GDP, natural resources, and FD in GCC nations using a novel approach, namely MOMQR techniques. Furthermore, this study will be conducted within the framework of EKC and the interaction term between energy usage, which is the lifeline of any economy, and financial development is examined in this study. As a result, by using MMQR to evaluate the relationship between CO2 emissions and these determinants, the current work bridges the gap in the environmental research and aids in the development of the productive policy choices for neutralizing carbon emissions in the region.
5. Conclusions and Policy Suggestions
5.1. Conclusions
A review of the environmental literature indicated a diverse range of nations, groupings of countries, and nomenclature, with limited attention to the issue of GCC economies. As a result, this research indicated the intention of showing the serious position of GCC economies regarding the quality of the environment amidst the pattern of financial development, energy utilization, and the ambition for economic growth. As a result, this research utilized a range of crucial datasets between 1995 and 2019 to examine the GCC nations. Using a number of empirical approaches, including cointegration methods, MOMR regression (which compensates for distributional heterogeneity), and panel Granger causality approach, significant findings were uncovered, prompting a policy perspective. We detect a cointegrating interaction between carbon emissions and energy usage, financial development, natural resources, GDP, and squared of economic growth in the long term. Furthermore, the findings of the MMQR, FE-OLS DOLS, and FMOLS confirmed that natural resources, financial development, energy usage, and GDP deteriorate the environmental quality, as well as prove the presence of the EKC hypothesis. Moreover, the results also demonstrated that financial development greatly moderates energy usage in order to attain environmental sustainability. The path of causality moves from GDP, GDP2, and FD to CO2 emissions. Lastly, the causality direction runs from carbon emissions to EN.
5.2. Policy and Prospects for Future Study
The GCC economies need to exhibit caution when pursuing measures that encourage economic progress at the expense of the environment. The existing energy mix of the region must be revised by ensuring the promotion of sustainable energy sources and other energy-efficient technologies in order to attain environmental quality. The GCC nations should pursue a more dramatic and persistent approach to establishing a greener environment via green industrialization and investment in low-carbon technology, particularly concerning specific countries, which are currently motivated to recover their development path in the wake of the COVID-19 outbreak. Given that financial development seems to possess a considerable influence on moderating the sustainable environment component of energy utilization, there is a major insight for the GCC nations, particularly in terms of financial development. As a result, the financial sector of these nations should be expanded, particularly in the economies where the financial sectors are in their initial phases of structural reform. Furthermore, this study constitutes shortcomings that can be addressed in subsequent work. One such shortcoming is that the research utilized the aggregate metric of the natural resource rents. Thus, subsequent research may be conducted to look into specific forms of natural rents, such as forest, mineral, oil, coal, and natural gas rents. Moreover, carbon emissions were used as a proxy for environmental quality in this study. Subsequent studies might look at other types of environmental deterioration, such as greenhouse gas emissions and ecological footprint, and then evaluate the results. Finally, subsequent research in this region could incorporate environmentally important parameters, namely fiscal policy, political uncertainty, etc., to better reflect the situation of the GCC economies.