Assessing the role of regulatory quality,favouritism, administrative requirement and licencing restriction in curtailing carbon emissions

The urgent need to achieve the Paris Agreement has compelled countries to set mitigation targets to curtail carbon emissions. Notwithstanding, stakeholders' effort to implement emission-reduction policies is often constrained by institutional challenges. This study provides new evidence about the dynamic relationship between institutional quality and carbon emissions in 63 industrialised economies. Using a reduced-form energy emission model and the system GMM technique, we exploit four institutional quality measures—favouritism, administrative requirement, licencing restriction and regulatory quality—and analyse their impact on carbon emissions. The results show that institutions play a fundamental role in mitigating carbon emissions. However, the abatement effect depends on the regulatory quality, the extent of favouritism, licencing restrictions and administrative requirements. Our findings reveal that stringent regulations such as licencing restrictions reduce carbon emissions in the short and long run. Administrative requirement such as emission reporting inhibits carbon emission in the short and long run, whereas favouritism worsens it. The results are robust to alternative model specifications. The findings from this study highlight the need for policymakers to pay close attention to favouritism, as it tends to reduce the effectiveness of emission policy regulations. Additionally, we argue for the need for stringent administrative requirements given its critical role in internalising carbon emission intensity in industrialised economies.