Renewable energy and CO2 emissions in middle-income economies: The roles of FDI, innovation, and industrialization under the EKC

• This study explores the link between CO 2 , renewable energy, GDP, and various factors using the EKC hypothesis in MICs. • Advanced approaches (CCEMG, DCCE, D-H test) confirm an inverse-U-shaped EKC for CO 2 -GDP. • Renewable energy reduces emissions; economic factors drive them up, per the results. • Policymakers are advised to invest in renewables, low-carbon tech, and cleaner industrial practices. • The study’s novelty lies in exploring the joint effect of economic factors on CO 2 emissions in MICs using CCEMG and DCCE within the EKC framework. The 2023 global CO 2 emissions are documented to exceed 36.8 billion tons, emphasizing the need for a balance between environmental sustainability and economic growth. Determining effective climate policies and strategies is crucial to addressing this challenge of reducing emissions while encouraging growth for sustainable development. Therefore, this study explores the relationship between renewable energy and CO 2 emissions within “the Environmental Kuznets Curve (EKC) framework” in middle-income countries (MICs), considering the roles of foreign direct investment (FDI), innovation, and industrialization. The study employs advanced econometric methods, including “the Common Correlated Effects Mean Group (CCEMG), the Dynamic Common Correlated Effects (DCCE) methods, and the Dumitrescu-Hurlin (D-H) causality test” to analyze panel data from 25 MICs. The overall results show an inverse U-shaped relationship between GDP per capita and CO 2 emissions, supporting the EKC hypothesis. The causality analysis discloses that most variables exhibit bidirectional relationships with CO 2 emissions, indicating mutual influence between these factors and environmental outcomes. The study reveals that while renewable energy significantly lowers CO 2 emissions in most MICs, various economic factors contribute to an overall increase in emissions in these nations. In fact, the economic growth of some countries is still related to higher emissions. Policies should focus on accelerating renewable energy use and promoting low-carbon technologies, while confirming that foreign investment, innovation, and industrial growth align with environmental sustainability. This approach aims to establish a robust growth-emissions pathway in MICs.