The threshold effect of climate finance on carbon dioxide emissions in sub-Saharan Africa

Abstract

This research explores the threshold effect of climate finance on carbon dioxide emissions in sub-Saharan Africa spanning the period 2000–2022. The regression equation was estimated using FMOLS, whereas POLS and DOLS were used to check for robustness. The results indicate a nonlinear association between climate finance and CO 2 emissions: at lower levels, climate finance is associated with higher emissions, while beyond a threshold further increases are associated with lower emissions, validating the inverted U-shaped EKC hypothesis. We estimate the threshold effect of US$2 trillion, derived from the quadratic urning point in the logged model and estimate a 43-year period of sustained climate finance investment to meet the threshold target. For middle-income countries, the nonlinear pattern is not statistically significant. For low- income countries, the estimates are consistent with a U-shaped relationship. The results further demonstrate that in both non-oil- and oil-producing countries, the initial infusion of climate finance worsens environmental quality until, at a certain threshold, further injections of climate finance reduce environmental pollution, an objective consistent with SDG 13 (Climate Action). Policy recommendations are drawn from the results obtained from the study.