Environmental Pollution and Carbon Accountability: Will Energy Efficiency Budgeting and Banks Portfolios Carbon Footprint Facilitate United Kingdom's 2050 Net-Zero Emissions?

Abstract

The energy and financial sectors have been incorporated into the quest to solve climate change, with increasing recognition of the direct impacts that financial institutions' lending and investment practices have on environmental sustainability. This study applies Quantile Autoregressive Distribution Lags (QARDL) Model to examine the dynamic impact of energy efficiency budgeting on carbon dioxide emissions, controlling carbon footprint of banks’ portfolios in United Kingdom. First, an in-depth descriptive statistics analysis of data for various variables are conducted. The study then uses Quantile Augmented Dickey-Fuller to test for stationarity, then proceeds to perform Quantile Cointegration test and closely followed by Quantile Autoregressive Distributed Lags (QARDL) estimation to examine the impact of energy efficiency budgeting and carbon footprint of banks’ portfolios on carbon dioxide emissions. The empirical results validate the findings of stationarity for each variable. There is evidence of first-order differential integration I (1) among variables. There is a cointegration link between the three variables and that they have a more prolonged and stabled relationship. The results showed that energy efficiency budgeting has a reducing effect on carbon dioxide emissions. Its effectiveness varies across different emission quantiles, there is the need for a flexible budgeting approach. Policymakers should develop mechanisms to adjust budget allocations based on current emission levels, potentially increasing budget during periods when the impact is likely to be strongest. However, carbon footprint of banks portfolios promote rise in carbon dioxide reduction. The central bank of UK should implement mandatory carbon screening tools for bank portfolios. These mechanisms would help banks understand and manage their immediate carbon impact. Banks should be required to develop comprehensive carbon accounting systems that track both direct and indirect emissions from their investments