International trade and <scp>consumption‐based</scp> carbon emissions: Does energy efficiency and financial risk ensure sustainable environment?

Abstract Sustainable environment is one of the many desirable goals of the modern era, both in developed and developing economies. Energy efficiency (ENEF) with lower political, financial, and economic risk reduces consumption‐based carbon emissions (CCO 2 ) and the decisive international trade and regulatory policy concerning environmental quality. The study examines the role of ENEF and financial risk on international trade‐CCO 2 in BRICS countries panel data covering 1990–2019. This study incorporated four risk indexes: political risk (PRI), financial risk (FRI), economic risk (ERI), and composite risk index (CRI). These results of the panel cointegration test confirmed the existence of a cointegration relationship between CCO 2 , gross domestic product (GDP), exports (EX), imports (IM), ENEF, PRI, financial risk, economic risk, and CRI in the five models. The empirical results of the second‐generation cross‐section augmented autoregressive distributed lags model indicate that EX, ENEF, FRI, PRI, ERI, and CRI are negatively associated with CCO 2 in the long run and short run in BRICS countries. Inversely, GDP and IM are positively linked to CCO 2 in the long run and short run. The empirical findings of this study provide some policy implications; international trade contributes significantly to improving environmental quality by importing friendly environmentally technologies and less energy‐intensive use production inputs. On the other hand, less energy‐intensive industries for export purposes will support international trade's effective role in improving environmental quality and producing less CCO 2 in BRICS economies.

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