When does urbanisation drive climate transition? Leveraging financialisation and taxation for UK's environmental change

Abstract

This study investigates how financialisation and taxation shape the relationship between urbanisation and methane (CH 4 ) emissions in the United Kingdom. Using Kernel Regularised Least Squares (KRLS) and Quantile-on-Quantile Regression (QQR) to capture nonlinearities and distributional heterogeneity, the findings reveal that urbanisation exerts threshold-dependent effects on CH 4 emissions. At the early-to-intermediate stages of urbanisation, agglomeration efficiency gains help reduce emissions; however, beyond a critical threshold, scale and congestion effects increase pressure on emissions, consistent with the Urban Environmental Transition framework. Financialisation emerges as a double-edged mechanism. Under strong regulatory frameworks, it supports decarbonisation, but it increases emissions when capital flows into carbon-intensive activities. Taxation is most effective in reducing emission intensity at low-to-intermediate emission levels, although its abatement effectiveness weakens at higher emission regimes. Importantly, the moderating interactions among urbanisation, taxation, and financialisation indicate that environmental outcomes are jointly shaped by institutional quality and policy coherence. These findings have important implications for the United Kingdom’s climate commitments under SDG 9, SDG 11, and SDG 13.