There is a complex relationship among energy consumption, environmental pollution and climate change. Global warming is mainly caused by greenhouse gas emissions, which is due to widespread consumption and dependence on fossil energy to promote economic development (Chiu, 2017; Salari et al., 2021). Global communities are collaborating to find renewable energy as alternative energy sources for achieving environmental and economic sustainability (Pavlović et al., 2021). Usman and Balsalobre-Lorente (2022) revealed that investment in clean energy may reduce ecological footprint and mitigate climate-related extreme events for the top ten newly industrialized countries from 1990 to 2019. Dong et al. (2017) investigated the relationship between the renewable and natural gas energy sources and carbon dioxide emissions use via the augmented mean group estimator. They found that 1% increase in the level of renewable energy and natural gas consumption will reduce carbon dioxide emissions by 0.2601 and 0.1641% in BRICS countries. Bölük and Mert (2014) showed that clean energy emits about half as much carbon as fossil energy using the sample of 16 European Union countries in the period 1990–2008. In addition, Nyambuu and Semmler (2020) proved that renewable energy can effectively deal with climate change problems with a dynamic growth model. Rahman and Velayutham (2020) predicted the greenhouse gas emissions and investment costs caused by meeting electricity demand under different energy consumption condition. The results showed that clean energy is a vital way to mitigate global warming, and the cost of renewable energy is lower than that of non-renewable energy. Brini (2021) applied the autoregressive distributed lag model and granger causality tests to investigate the relationship between renewable energy generation and climate change for African countries from 1980 to 2014. The results revealed that renewable energy can effectively ameliorate greenhouse gas emissions in the long term, and increase in the proportion of clean energy consumption in total energy will help mitigate climate change.

Climate change seem to play an important role in energy consumption and carbon dioxide emissions. On the one hand, climate change can increase energy consumption. Liu et al. (2021) proved that climate change may have a punishing effect on environmental quality, global warming will accelerate the deterioration of air quality. The current global climate change shows a trend of increasing temperature year by year, which makes urban areas require a lot of energy, especially electricity to be consumed for cooling buildings (Javanroodi et al., 2018). On the other hand, climate change will threaten the safety of electricity generation (Sharifi and Yamagata, 2016). Extreme temperatures will destroy electricity generation equipment and decrease confidence in clean energy. Insufficient investment in clean energy will inhibit the development of renewable power generation, especially solar power generation (Chen et al., 2021). Zhao and Huang, (2020) expected that climate change has a negative impact on the potential of photovoltaic energy, and it may experience a slight decline of up to 6% in most regions of China.

Technological innovation is the key factor of global energy pattern and low-carbon economic development. Innovation contributes to reducing energy consumption and optimizing energy structure. On the one hand, technological innovation helps to reduce emissions by improving energy efficiency (Sohag, 2015; Pradhan and Ghosh, 2022). Technological innovation can raise the efficiency of traditional fossil energy, achieve the target of energy conservation and emission reduction by decarbonization in the production process. It also can improve green total factor productivity, hoist technological capability of renewable energy, and accelerate development of clean energy industry. Jahanger et al. (2022) applied that technology innovation can mitigate carbon footprint and environmental pollution by providing energy efficiency in 73 developing countries during the period from 1990 to 2016. On the other hand, Innovation can promote energy consumption to shift from pollution-intensive fossil fuels consumption to renewable energy consumption, which contributes to the reduction of carbon emissions (Anwar et al., 2020). In fact, technological innovation can improve the supply capacity of renewable energy as well as optimize the energy mix (Chen and Lei, 2018). Tang and Tan (2013) applied that the main reason for reduction in fossil energy consumption is renewable energy innovation. Cheng et al. (2019) indicated that energy innovation stimulates renewable energy consumption in countries with low oil reserves. Geng and Ji (2016) found that technology innovation has a long-run equilibrium relationship with renewable energy consumption in United States, Germany, and other six developed countries from 1980 to 2010. Zheng et al. (2021) found that innovation also promotes renewable energy power generation in China. They applied that a 1% increase in the level of renewable energy innovation will lead to an increase of 0.411% in the province’s renewable energy power generation. However, the contribution of energy innovation to economic growth will inevitably increase energy demand, which may totally or partially offset reduction in energy consumption (Ganda, 2019).

The innovation-environment link has revealed that many countries have focused on investing in research and development to achieve environmental sustainability and low-carbon development (Cantner and Dettmann., 2019). Technological innovation may be a cost-effective way to build low-carbon society (Bayer et al., 2013). Danish and Ulucak (2021) applied the dynamic auto-regressive distributive lag simulation method to prove that technology innovation is conducive to a significant reduction in carbon dioxide emissions in the United States in the short-run and long-run. Sæther (2021) underlined that decarbonization of the power sector is key to the global energy consumption transition from fossil fuels to renewables. They applied that technological innovation policies can enhance the efficiency of carbon emission reduction in wind power generation using the sample of 34 OECD countries and 5 BRICS countries in the period 2001–2018. Su and Moaniba (2017) explored that whether technology innovation can cope with environmental pollution. They implied that innovation responds positively to the deteriorating environment, and increasing greenhouse gas emissions from liquid and gas fuel will compel technology innovation with data from 70 countries.

Technology innovation is often regarded as a most effective approach to mitigate climate change. In order to deal with the problems of global warming and other threats to the environment, a series of technological innovation programs are made to control high greenhouse gas emissions. Promoting technological innovation will help achieve the climate change goals set by the Paris Agreement at COP21 (Wang et al., 2020). Investments in R&D as an effective strategy to reduce carbon emissions due to improve innovation capability and promote sustainable development. Lin and Zhu (2019) discussed the driving factors of renewable energy technology innovation. The intensive greenhouse gas emissions force governments to promote the level of renewable energy technological innovation, signifying that innovation processes respond positively to climate change.

The G20 defines green finance as investment and financing of environmentally sustainable development. Green finance stimulates a shift in energy consumption from fossil fuel resources to renewable resources by encouraging investment in clean energy projects. A more direct approach would be to impose quantitative limits on loans for carbon-intensive activities, reduce the proportion of bank credit to the fossil fuel sectors. Dafermos and Nikolaidi (2021) found that green differentiated capital influences the transmission channels of credit supply and loan spreads within a dynamic framework. Green funds can slow the pace of global warming by supporting environmentally friendly projects, and reduce financing restriction of enterprises. Muganyi et al. (2021) employed the semi-parametric difference-in-differences method to explain that green finance has significantly reduced industrial waste gas emissions in 290 Chinese cities during the period from 2011 to 2018. They emphasized that governments should accelerate the innovation of green financial products and services, and improve the green credit capacity of financial institutions. In addition, green finance and clean energy consumption will help reduce carbon intensity. Ren et al. (2020) implied that clean energy consumption is mainly affected by carbon intensity, which development lacks independent driving ability and mainly depends on green financial support in the long term. Reboredo (2018) found that the positive environmental externalities generated by green bonds trading contribute to the execution and proliferation of renewable energy solutions across countries. Li et al. (2022) further analyzed the relationship between green bonds and renewable energy index during the period from 2011 to 2019. The results showed that OECD countries raise 31 percent of green bond financing into the construction of the renewable energy index, the per unit energy efficiency of renewable energy will increase by 9.4 percent.

As green bonds and climate bonds are aligned with the sustainable development goals, more and more countries are beginning to recognize the potential of green finance in addressing environmental pollution and climate change. Climate finance aims to provide financial support for climate change mitigation and adaptation activities, which provide financial assistance to mitigate risks of environmental pollution and extreme weather change. Zerbib (2019) adopted a matching method to estimate the relationship between environmental preferences and green bonds, and found that the growing demand for environmental quality is the main driver of demand for green bonds. Flammer (2020) analyzed that the market mechanism of green bond financing in environmental sustainability. The results emphasized that the significance of green bonds in shaping environmentally responsible enterprises and pointed to the use of green bond as a financing policy tool to complete environmental protection targets.

Many countries are trying to promote the development of green innovation and green finance to realize long-term climate targets (Li and Liao., 2018). Green innovation often forms financing constraints due to technological uncertainty and long R&D cycles (Andersen, 2017). The promotion effect of green finance on investments and loans for environmental sustainability, which has become a global consensus on environmental protection action (Acheampong et al., 2020). Green financial development can promote green technologies, improve energy efficiency, and thereby reduce carbon dioxide emissions per unit of output (Pan et al., 2019). Hu et al. (2021) proved that green technology innovation of enterprises needs to invest a lot of capital, which cannot be achieved by relying solely on traditional financing channels. Green finance can provide enterprises with comprehensive financial support on preferential terms, which can meet the needs of clean technology transformation and advanced production relations, effectively reduce carbon emissions. In fact, green financing seems to guarantee the effectiveness of environmental protection actions by a massive investment in technical human capital and technological innovation. Adequate and sustained funds can promote low-carbon technology innovation, and ultimately reduce environmental degradation and climate risks (Tamazian et al., 2009). Bird et al. (2011) analyzed that carbon finance can also promote the expansion of renewable energy scale through energy substitution effect, and the indirect effect of scale can further trigger the innovation of renewable energy technology by stimulating investment. Yu et al. (2021) proved that green finance policy alleviates financing constraints of green innovation. When companies face higher financing constraints, green innovation capacity will be impaired. Governments should design a comprehensive evaluation mechanism for green performance to ensure that funds flow to green innovation.

However, financial development can promote business activities by reducing the costs of credit for enterprise technological progress. The expansion of business activities and infrastructure projects will lead to an increase in energy consumption and greenhouse gas emissions (Sadorsky, 2011). Increased carbon dioxide emissions may result from the promotion effect of financial development on technology innovation. Productive technology can obtain financial support through green finance development, so as to further expand the production scale of enterprises. Energy-efficiency technological innovations lead to an increase in total actual energy consumption, a phenomenon known as the rebound effect of technology. Aluko and Obalade (2020) proved that financial development has an adverse impact on environmental quality through technology innovation, using the sample of 35 sub-Saharan African countries for the period 1985–2014.

The green bond market has grown dramatically in recent years, increased flows of capital flows into low-carbon economic activities. The global cumulative issuance of green bonds reached USD754bn by 2019, since its inception in 2007. The volume of green bonds issued was primarily driven by the European market, with 45 percent of global market. It is followed by the Asia-Pacific market (25 percent) and North American market (23 percent). United States leading with USD171.5bn, followed by China (USD107.3bn) and France (USD86.7bn).

The total number of countries with green bonds issued to 62 in 2019. The main countries from six continents, including Africa, Asia, Europe, North America, Oceania, and South America. In consideration of the typicality and availability of data, this study excluded the sample of countries with small volume of green bond issuance and incomplete data. We employed annual and unbalanced panel data of 49 countries over the period 2007–2019. The countries are described in Table 1.

This study included technology innovation and green finance as core variables into the simultaneous equations model of energy-environment-climate nexus. The theoretical framework is showed in Figure 1. The main variables include innovation, green finance, energy consumption, environmental pollution, climate change and other control variables. The innovation is measured by global innovation index, green finance is calculated as yearly green bond volume, energy consumption is calculated as a percentage of renewable energy to total energy consumption, environmental pollution is based on CO2 emissions, and climate change is measured by the variations of average temperatures. All variables come from the database of World Bank, World Intellectual Property Organization, Penn World Table and Climate Bonds Initiative. The variables are showed in detail in Table 2.

This study employs annual and unbalanced panel data of 49 countries over the period 2007–2019. The energy-environment-climate nexus simultaneous equations model includes five core variables (renewable energy consumption, environmental pollution, climate change, innovation and green finance), and control variables (GDP, industrialization, urbanization, climate policy and capital stock). Table 3 provides descriptive statistics on each of variables.

In order to deal with the problems associated with the existence of unobtainable heterogeneity, a system GMM estimator with two-step robust standard error was employed in this study. All the models (energy consumption model, environmental pollution model and climate change model) passed the AR (2) test (p value >0.05) and Sargan test (p value >0.05), it shows that the statistical model does not have the problem of autocorrelation in second-order serial correlations and over-identifying restrictions in instrumental variables. Thus, the regression results are accurate and reasonable.

For the energy consumption model given in Table 4. ENVIR has a significantly negative influence on RE, which is supported by Pavlović et al. (2021) and Ahmed et al. (2021). Areas with high carbon dioxide emissions are more dependent on fossil fuel consumption, which hinders the transformation of energy structure and inhibits the consumption of clean energy. Environmental degradation has not effectively formed a coercive mechanism for the governments to regulate greenhouse gas emissions.

CLIMA has a statistically significant and negative impact on RE. The evidence is consistent with work by Chen et al. (2021) and Zhao and Huang., 2020. Extreme temperatures will hinder the use of clean energy such as solar and wind, damage equipment and reduce the efficiency of power generation in the short term. Climate change also can arouse public concern, forcing governments and enterprises to transform energy structure and improve the utilization rate of clean energy. In fact, the influence of the former is more obvious at this stage.

INO has statistically significant and positive impact on RE, which is supported by Anwar et al. (2020) and Zheng et al. (2021). Technological innovation satisfies the target of energy conservation and improves clean energy consumption. Technological innovation can effectively alleviate the contradiction between supply and demand in energy market, and enterprises will embark on more efficient renewable energy innovation actions with a higher energy demand.

GF has statistically significant and negative impact on RE, which is not supported by Ren et al. (2020) and Li et al. (2022). Green bonds have failed to create incentives for renewable energy consumption. With an increasing green bonds investment in the buildings and transport sectors year by year, it has a crowding out effect on the clean energy sector, and inhibits the investments of renewable energy projects. In addition, greenwashing behavior may also make green bonds no different from ordinary financing methods, failing to effectively form special funds for green projects.

The interaction term INO*GF is positively correlated with RE. The positive effect of innovation on renewable consumption will increase as green finance is enhanced. The evidence is similar to finding by Bird et al. (2011) and Hu et al. (2021). Green finance may increase investment in clean technologies innovation, which lead to a shift in the energy structure from fossil-fuel resources to renewable resources. Sufficient funds will reduce uncertainty and financing constraints of green innovation, and encourage governments and enterprises to promote innovations and patents to promote high-quality development of renewable energy sectors.

For the environmental pollution model given in Table 5. RE has a negative influence on ENVIR, which is supported by Rahman and Velayutham, (2020) and Usman and Balsalobre-Lorente, (2022). Excessive use of fossil energy is the primary cause of greenhouse gas emissions. Carbon dioxide emissions can be significantly reduced by using renewable energy sources, such as solar, nuclear and wind energy. When more renewable energy is used in power generation, carbon dioxide emissions are significantly reduced. And ultimately achieve the goals of environmental quality improvement.

CLIMA has a significantly positive impact on ENVIR. The evidence is consistent with work by Javanroodi et al. (2018) and Liu et al. (2021). Extreme weather events may frequently destroy electricity generation equipment, the investment of clean energy power generation will be curbed, especially solar and wind power sectors. Extreme temperatures can also make urban areas require a lot of energy, especially electricity to be consumed for cooling buildings. Thus, climate change will increase the probability of environmental pollution.

INO has a statistically significant and negative influence on ENVIR, which is supported by Sæther, (2021) and Jahanger et al. (2022). Green technology innovation facilitates the transition of the energy matrix from fossil energy consumption to the renewable energy sector due to its environmentally friendly character. Urgent investment in green technology innovation can meet energy demand at low carbon emissions level. Innovation may improve energy efficiency, reducing greenhouse gas emissions per unit of energy consumption.

GF has a significantly negative impact on ENVIR, which is supported by Flammer (2020) and Muganyi et al. (2021). Green financial development can encourage companies to improve energy efficiency by constantly upgrading equipment, and achieve targets of energy conservation and emission reduction. Green finance guides capital flow to low-carbon industries and restrains the flow to high-carbon sectors, and lead to carbon emissions reduction.

The interaction term INO*GF is positively correlated with ENVIR at the 5% significance level. The negative effect of technology innovation on CO₂ emissions is enhanced by higher levels of green finance, which is supported by Pan et al. (2019) and Acheampong et al. (2020). Financial development can encourage a higher level of R&D, decarbonization technology innovation is more favored by green finance due to carbon emissions reduction. Green bonds mode is suitable for low-carbon technology innovation, which has the characteristics of long cycle and large capital demand. Green financial policies can improve green innovation by effectively dissolving the impact of corporate financing constraints to achieve carbon emissions reduction. Thus, development of green finance can help improve environmental quality by supporting technological innovation.

For the climate change model given in Table 6. RE has a statistically significant and negative effect on CLIMA, which is supported by Nyambuu and Semmler (2020) and Brini (2021). Renewable energy is the main way to alleviate global warming as a virtually carbon-free energy resource. Governments take serious action on climate change mitigation by increasing clean energy consumption in the energy sector and optimizing the energy structure, and reduce unacceptable climate risks and extreme weather events.

ENVIR has a positive influence on CLIMA. The evidence is similar to finding by Chiu, (2017) and Salari et al. (2021). Carbon dioxide emissions are the main reason for global warming, an increasing greenhouse gas emissions will cause extreme climate problems. Reducing greenhouse gas emissions worldwide by decarbonizing of energy sector, which can ensure global temperatures change at reasonable levels.

INO has a significantly negative impact on CLIMA. Technological innovation is an effective way to mitigate climate change, which is supported by Lin and Zhu (2019) and Wang et al. (2020). The improvement of green technology innovation may reduce greenhouse gas emissions and mitigate global warming risks by increasing energy efficiency and upgrading low-carbon equipment. Offsetting carbon emissions through technologies of carbon capture and storage, which will achieve “net zero” emissions of greenhouse gases.

GF is negatively related to CLIMA, which is supported by Dafermos and Nikolaidi (2021). Green bonds are issued to alleviate financing constraints for the solutions of environmental and climate problems. Green bonds improve climate change adaptation through targeted funding, including improving infrastructure resilience to climate change impacts, and building climate observation and warning systems.

The interaction term INO*GF is negatively correlated with CLIMA at the 5% significance level. The negative effect of technological innovation on climate change will decrease as green finance is enhanced. The evidence is consistent with work by Sadorsky (2011) and Aluko and Obalade (2020). Although green financial development may relieve financing constraints and provide adequate and sustainable financing for innovation, the development of green finance will inevitably drive economic expansion, and expanded production scale may weaken the emission reduction effects of innovation.

This study introduced innovation and green finance as explanatory variables into simultaneous equations models within the energy-environment-climate dimensions. We found that the promotion effect of technological innovation on renewable energy consumption. Innovation significantly reduces CO₂ emissions and climate change by improving renewable energy efficiency. The governance effect of green finance on environmental pollution and climate change indicates that green financial development will provide important impetus for sustainable development. Green bonds mitigate renewable energy consumption, the funds mainly flow to the field of energy conservation, green buildings and transport, which has a crowding out effect on renewable energy.

In the interaction term aspect, the positive effect of innovation on renewable energy consumption is enhanced by higher level of green finance. The negative relationship between innovation and CO₂ emissions are strengthen when level of green finance is high. The negative impact of innovation on climate change is weakened as green finance is enhanced. The green financial development will support adequate and sustained funding for innovation to promote renewable energy structure transformation and ameliorate environmental pollution.

In the energy-environment-climate nexus, there is bidirectional causality between renewable energy consumption and carbon dioxide emissions. The development of clean energy will support the low-carbon sustainable development. Deteriorating environment will in turn inhibit the development of renewable energy. There is a bidirectional causality between CO₂ emissions and climate change. Carbon dioxide emissions will lead to global warming and frequent climate extremes. Global warming in turn appears to increase carbon dioxide emissions and diffusion. There is a bidirectional relationship between climate change and renewable energy consumption. Extreme weather will inhibit the development of renewable energy sources by reducing the efficiency of energy generation and increasing maintenance costs. Renewable energy consumption will in turn cut down greenhouse gas emissions, and mitigate climate change.

This research has limitations that can serve as directions for further studies. First, we employed green bonds as a proxy for green finance, which could not reflect the whole picture of green finance. The further research can build a multi-dimensional finance index, including green investment, green credit, green securities and green insurance, and explore the financing mechanism of heterogeneous green finance. Secord, the sample involved the countries with green bonds issued as a whole. The further studies can subdivide countries into regions and characteristics, and offer country-specific policy implications.

The policy implications are as follows.

First, governments should encourage clean energy development and make a more scientific and rational energy structure. Government agencies should attempt to shift from fossil fuels to clean and renewable energy so that CO₂ would be reduced at the global level. Countries should actively adjust energy systems to achieve the goal of carbon neutrality. The European Union set up a “20-20-20” goal, which is to raise the renewable energy consumption ratio to 20%, increase the energy efficiency by 20%, and decrease carbon emissions by 20% before 2020. China promised a “30-60” target, that is to realize emission peak before 2030 and achieve carbon neutrality by 2060. Governments should focus on developing green industries, such as energy conservation and environmental protection industry, cleaner production industry, ecological environment industry, clean energy industry and green building industry. It is necessary to remove the entry barriers for renewable energy sources, and ensure renewable energy products can access to generate electricity market competitively.

Second, governments should develop environment-related technologies as a priority item. They should strengthen international partnerships to improve global environmental standards, increase policy support for environmental-friendly innovation and decarbonization technologies. For example, China has proposed to establish a green development alliance of the “Belt and Road” countries, which is committed to promoting green investment, sharing technical knowledge and resolving environmental problems. In addition, countries should build inter-regional platforms for innovation cooperation to promote the technology upgrading, and shorten the time for new technologies commercialization.

Third, a comprehensive green financing system should be established. Governments should set up a whole industrial chain and large-scale green finance to ensure the development of low-carbon economy. They should emphasize the important status of the securities market in green financing, and raise funds via IPOs and secondary placements for eligible green enterprises. It is necessary to encourage the development of green bond index and green stock index, and gradually establish a compulsory environmental information disclosure mechanism for bond issuers and listed companies. Governments should stimulate the vitality of carbon assets by asset securitization, which can promote the allocative efficiency of carbon assets. In addition, it is necessary to promote the innovation of green financial products and tools to provide financial support for sustainable development. Flexible and diversified financial services should be applied in clean energy sectors.