Environmental Policies and Energy Efficiency: its implications on environmental degradation among OECD countries

This study examines the effectiveness of environmental policy stringency (EPS) and energy efficiency (EEI) in reducing the ecological footprint of OECD countries from 1990 to 2023. Using the Driscoll-Kraay fixed effects estimator, the analysis accounts for cross-sectional dependence and slope heterogeneity to ensure robust inference. The findings reveal that while environmental policy alone has an insignificant effect on ecological footprint, energy efficiency contributes significantly to its reduction. More importantly, the interaction between EPS and EEI exhibits a strong negative effect on ecological footprint, suggesting that policy and efficiency measures reinforce each other in improving environmental outcomes. The results also confirm the existence of an inverted U-shaped environmental Kuznets curve, indicating that environmental degradation initially rises with income but declines beyond a certain threshold. Additionally, EPS appears more effective in countries with relatively lower energy efficiency levels. The results highlight the critical role of integrating stringent environmental policies with technological and efficiency-oriented initiatives to achieve sustainable reductions in ecological pressure across OECD economies.