Climate actions toward achieving environment and climate goals in Brazil: Insight from trilemma policies of climate financing,innovation,and transition

Abstract

Brazil's commitment to cut emissions significantly by 37% and 50% by 2025 and 2030, respectively, and reach carbon neutrality by 2050 reflects the importance of renewable energy, green finance, and technology as part of Brazil's climate strategy. This paper assesses the trilemma of financial development, renewable energy, and green technology in relation to Brazil's environmental quality, utilizing time-series data spanning 32 years (1990–2021). The autoregressive distributed lag (ARDL) framework was adopted, incorporating interaction terms between financial development and renewable energy consumption, as well as financial development and green technological innovation, to provide a nuanced perspective of how green finance is a crucial player supporting Brazil's transition toward a lower carbon economy. The results show that renewable energy consumption significantly shrinks carbon emissions in the long run, reflecting the ecological strength of Brazil's clean energy matrix, while underscoring the need to diversify beyond hydropower. Alone, financial deepening exhibits an ambiguous effect on emissions, which evidently becomes environmentally beneficial when interacted with renewable energy and green innovation, thus illustrating the enabling role of green finance policies, ESG frameworks, and targeted climate finance. Green technological innovation shows only marginal long-run improvements in environmental quality, reflecting structural gaps in Brazil's innovation system. Economic growth still increases emissions, indicating that Brazil has not yet decoupled growth from environmental degradation. Overall, the results affirm that coordinated improvement in financial development, green innovation, and renewable energy is pivotal for actualizing Brazil's climate goals and bolstering its pathway toward a sustainable, low-carbon economy.