Environmental cost of financial development within the framework of the load capacity curve hypothesis in the BRICS economies: Do renewable energy consumption and natural resources mitigate some burden?

Abstract

Ecological changes and deformations put nations around the world under socioeconomic pressure and are thus an important topic of discourse. In this framework, this study explores the effect of economic progress, natural resources, renewable energy and financial development on load capacity factor (proxy of ecological quality) utilizing the second‐generation approach for the case of the BRICS economies. Moreover, the paper explores the validity of the load capacity curve (LCC) hypothesis that has been recently introduced in the energy economics literature for the period between 1990 and 2018. The research results disprove the validity of the LCC hypothesis for the BRICS nations. Moreover, economic progress, financial development and natural resources cause ecological quality to decline, while renewable energy improves ecological quality. The panel causality results also support these results. Among several recommendations, the research advises that governments and policymakers advocate for reforms to promote renewable energy sources. The BRICS countries can go green and maintain ecological sustainability through this transition towards renewable energies, which is also a top priority of the UN's SDG 7.