Assessing the Relative Climate Mitigation Effects of Energy Efficiency, Conventional Energy, and Environmental Taxes in Australia: Evidence from a Dynamic ARDL Model

Energy efficiency (EE) is integral to a sustainable energy system and can play a significant role in climate mitigation by reducing energy consumption and the adverse effects of climate change. This paper examines the association between CO2 emissions, EE, environmentally related taxes (ERTs), renewable energy (RE), and non-renewable energy consumption (EC) in Australia from 1990 to 2020. Using a dynamic ARDL model, the empirical findings show that adopting EE (β = −0.14, p = 0.000), ERT (β = −0.08, p = 0.071), and RE (β = −0.008, p = 0.007) is associated with lower carbon emissions, particularly in the short run. Conversely, EC impedes climate mitigation, as revealed by the substantial positive and significant coefficient of 1.4%. Notably, EE has the largest short-run coefficient among the mitigating variables, indicating that energy efficiency is the most significant mitigator of carbon emissions in Australia in the short run. The ARDL bounds test confirms the existence of a long-run equilibrium relationship among the variables. However, in the long run, EE, ERT, and RE do not mitigate carbon emissions, given their statistically insignificant coefficients, whereas EC remains strongly positively related to CO2 emissions. Results from the FMOLS and DOLS estimates largely support the ARDL findings, though some sensitivity is observed for ERT. Consequently, this paper proposes a comprehensive policy direction for governments and international organizations, emphasizing the importance of reducing energy intensity and promoting EE as core climate mitigation instruments to foster a green, sustainable environment.