The impact on domestic CO2 emissions of domestic government-funded clean energy R&D and of spillovers from foreign government-funded clean energy R&D

There is scientific consensus that the risk of catastrophic global warming can be avoided only if global CO2 emissions are dramatically reduced. To the extent that government-funded clean energy R&D in one country not only reduces CO2 emissions in that country but also lowers CO2 emissions in other countries through international spillovers, such R&D can play an important role in reducing this risk. Whether and how domestic and foreign government-funded clean energy R&D affect domestic CO2 emissions is thus an important research question, which, however, is largely unexplored. The purpose of this study is therefore to examine the effects of domestic and foreign government-funded clean energy R&D on domestic CO2 emissions. Specifically, we examine the role of environmental goods imports as a channel of international R&D spillovers. Using non-stationary panel techniques, we find in data from the G7 countries over the period 1994–2018 that both domestic and foreign government-funded clean energy R&D have measurable negative effects on domestic CO2 emissions and that spillovers from foreign government-funded clean energy R&D occur through imports of environmental goods. We conclude from our findings that government-funded clean energy R&D can indeed play a significant role in reducing the risk of catastrophic global warming.