Can Turkey’s Environmental Pollution be Mitigated by Carbon Footprint of Bank Loans, Environmental Protection Expenditures and Taxes?

Due to global sustainability uncertainty, environmental sustainability has emerged as a key concern in the process of globalization in the past few decades. Using data collected in time series from 2005 to 2018, this study employs Nonlinear Autoregressive Distributive Lag (NARDL) Model to investigate the dynamic effects of environmental taxes, carbon footprint of bank loans, and environmental protection expenditures on carbon dioxide emissions in Turkey. First, this study uses the Augmented Dickey-Fuller and Phillip-Perron to test for stationarity, then used Johansen cointeration test to analyze long run stability of the varriables. The study then proceed to estimate Nonlinear Autoregressive Distributive Lag (NARDL) to examine the effect of positive and negative changes of the predictor variables on the dependent variable. Test for the model residuals and stability followed immediately. The results showed that environmental taxes, bank loan carbon footprints, environmental protection expenditure, and carbon dioxide emissions in Turkey cointegrate. Bank loans have has both short and long-term increasing effect on carbon emissions however, carbon emissions reduces if banks lower their portfolios that promote emissions. Spending on environmental protection reduces carbon emissions. However, if environmental spending is reduced, carbon emissions is promoted. Environmental tax is has a greater impact of reducing carbon emissions in the short and long–term but if environmental levies decrease carbon emission stands significant risk of increment.