The Impact of Financial Development on CO2 Emissions of Global Iron and Steel Industry

Abstract As carbon peaking and carbon neutrality have become a global consensus, more and more countries have introduced relevant policies to adapt to their own countries and formulated corresponding time roadmap. The industrial sector, especially the steel sector, which produces high levels of pollution and carbon emissions, is facing significant pressure to transform its operations to reduce CO2 emissions. Previous studies have shown the importance of financial development (FD) in environmental protection, however, the impact of FD on the CO2 emissions of the steel sector is ignored. This paper examines the impact of FD on the CO2 emissions of the iron and steel industry from a global perspective using comprehensive panel data from a total of 30 countries during the period from 1990 to 2018. Empirical results show that an improved level of FD in a given country reduces the CO2 emissions of the iron and steel industry. Our results also show that the effect of FD on reducing the CO2 emissions of the iron and steel industry in developing countries is less than its effect in developed countries. Estimation results also show the existence of the Environmental Kuznets Curve hypothesis in the iron and steel industry. The mechanism analysis indicates that FD promotes the upgrading of the structure of the iron and steel industry and the reduction of the CO2 emissions by means of the three-stage least square method. Finally, we discuss the policy implications of achieving carbon neutrality in the steel sector.