On the Link Between Capital Stock and Carbon Dioxide Emissions in Europe: Assessing Environmental Efficiency

Abstract This study investigates how aligning public and private investments can improve carbon efficiency, providing a context for policymakers seeking sustainable growth. An econometric approach is used to analyze the relationship between capital stock and carbon dioxide emissions across 25 European countries from 1990 to 2019. The study emphasizes the need for policymakers to prioritize public investments in renewable energy infrastructure to create conditions conducive to private-sector participation. This research also demonstrates: (i) a negative effect of globalization on the carbon intensity of the capital stock, particularly in the long run; (ii) the impact of trade on carbon emissions varies across specifications, indicating that trade openness can either reduce or increase carbon intensity; (iii) The ecological footprint negatively affects the carbon efficiency of the capital stock, suggesting the need to protect the environment further and combat global warming; and (iv) the urbanization trend in Europe is primarily linked to a decrease in the carbon intensity of the capital stock, especially over the long run. The interaction among energy transitions, capital stocks, and governance structures provides EU policymakers with a comprehensive roadmap for effectively mitigating climate change.