Driving Climate Action at COP28 : The Intermediating Role of Environmental Policies in Enhancing R&D and Venture Capital for Climate Mitigation in EU

ABSTRACT

The integration between economic development and climate change holds significant importance for European Union (EU) countries due to their stage in the development process and the climate challenges they encounter. This study examines the intermediating role of environmental policies in climate change mitigation within the context of COP28's global climate objectives. Specifically, the study investigates the environmental policy stringency index (EPSI) as a mediator in promoting climate change mitigation technologies (CMM), focusing on public sector research and development (R&D) and venture capital investments. This study also considers economic growth, trade openness, FDI, and green technology diffusion (GTD), analyzing data from 30 EU countries between 2000 and 2020. Utilizing the panel quantile regression method, the findings reveal a positive intermediating effect of EPS on public R&D across all quantiles, while a negative intermediating effect of EPS on climate change mitigation through venture capital is observed from the 10th to the 80th quantiles. These results underscore the necessity of expanding environmental policies to foster incentives and supportive frameworks that encourage venture capital investments in sustainable technologies while increasing public R&D funding. Aligning with COP28 goals, this study highlights the pivotal role of robust environmental policies in accelerating the EU's transition toward climate neutrality.