UK's net-zero carbon emissions target: Investigating the potential role of economic growth, financial development, and R&D expenditures based on historical data (1870-2017)

The 4^th industrial revolution and global decarbonisation are frequently referred to as two interrelated megatrends. Particularly, where the 4^th industrial revolution is expected to fundamentally change the economy, society, and financial systems, it may also create opportunities for a zero-carbon future. Therefore, in the context of UK's legally binding commitment to achieve a net-zero emissions target by 2050, we analyse the role of economic growth, R&D expenditures, financial development, and energy consumption in causing carbon dioxide (CO₂) emissions. Employing the bootstrapping bounds testing approach to examine short- and long-run relationships, our analysis is based on historical data from 1870 to 2017. The results suggest the existence of cointegration between CO₂ emissions and its determinants. Financial development and energy consumption lead to environmental degradation, but R&D expenditures help to reduce CO₂ emissions. The estimated environmental effects of economic growth support the EKC hypothesis. While a U-shaped relationship is found between financial development and CO₂ emissions, the nexus between R&D expenditures and CO₂ emissions is analogues to the EKC. In the context of the efforts to tackle climate change, our findings suggest policy prescriptions by using financial development and R&D expenditures as the key tools to meet the emissions target.