Are economic complexity and eco-innovation mutually exclusive to control energy demand and environmental quality in E7 and G7 countries?

The objective of this study is to scrutinize the major drivers of energy consumption and carbon dioxide emissions in an augmented model framework. The roles of eco-innovation, economic complexity, institutions, and globalization are examined in the context of two sets of heterogeneous panel observations, namely the G7 and E7 countries from 1991 to 2017. The estimated results obtained from the Fully Modified Least Square, Dynamic Ordinary Least Squares, and Canonical Correlation Regression demonstrate the effectiveness of eco-innovation in reducing the intensity of energy use in G7 countries. Eco-innovation is also found to be beneficial for controlling carbon emissions in G7 countries. In contrast, the impact of eco-innovation on the E7 countries is harmful as far as energy efficiency and carbon emissions are concerned. Such contrasting behaviors across the two panel sets of observations validate the postulation of the “rebound effects” of environmental-related technologies in the latter group. The findings further indicate the existence of an inverted U-shaped relationship between economic complexity and carbon emissions for G7 countries. In contrast, the E7 countries experience a U-shaped relationship. Both institutions and globalization are significant determinants of environmental quality in G7 and E7 countries. There is an urgency to reinforce the commitment towards the application of eco-technology for efficiency in energy use in G7 countries. As far as the E7 countries are concerned, the governments should optimize the gains from globalization to develop energy efficiency and carbon abatement strategies.