The foundation of green trade lies in environmental regulation and protection, distinguishing it from traditional trade (Kang and Lee, 2021). Additionally, green trade fully incorporates trade costs, which encompass not only the social costs of production, investment, and exports but also the environmental costs that arise from these economic activities. According to the theory of new institutional economics, the lack of clearly defined property rights for environmental and energy resources means that the environmental costs associated with trade cannot be internalized. This results in an inefficient allocation of both social and environmental costs in the pricing of traded products (Kang and Lee, 2021; Can et al., 2022). Consequently, a key focus of green trade is addressing the externalities of trade, specifically the environmental problems that emerge during the trade process (Khan et al., 2020).

As global production activities and trade exchanges continue to increase, the consumption of resources and energy is also rising, significantly impacting the environment (Carrasco and Tovar-García, 2021). The concepts of the “pollution halo” and “pollution haven” form the foundation of current research on green trade and carbon emissions. The pollution halo theory suggests that multinational firms engaging in direct investment in other countries bring advanced production technologies and managerial expertise to the host nation, enhancing its productivity and fostering economic growth (Balcilar et al., 2023). According to the theory of regional specialization in trade, this process enables the host country to upgrade its industrial structure through the adoption of these emerging technologies, leading to reduced energy consumption and subsequently lower environmental pollution and carbon emissions (Wang et al., 2023).

However, Carrasco and Tovar-García (2021) emphasize that the majority of carbon emissions today originate from developing countries. This is attributed to their economic and technological backwardness, low productivity, and the dominance of energy-intensive and labor-intensive industries, all of which contribute to the deterioration of local environmental conditions. Therefore, promoting the modernization of the industrial structure in developing nations is a key objective in achieving carbon neutrality. According to Tawiah et al. (2021), developing countries must actively attract investments from high-tech firms, provide local communities with appropriate technological support, and facilitate the upgrading of their industrial structures to promote green development.

Nevertheless, the conclusion of the pollution haven hypothesis suggests the opposite. That is, the majority of foreign direct investment (FDI) merely transfers the low-end segments of businesses from developed to developing countries (Wang et al., 2023). According to the theory of comparative advantage, these highly polluting foreign-owned enterprises are attracted to the low-cost raw materials and cheaper labor in developing countries, where environmental regulations are relatively lenient. To avoid stricter environmental regulations in their home countries, these firms relocate their operations to developing countries with lower costs.

Moreover, the negative impact of green trade on global supply chains is significant and cannot be ignored. Under new green standards, some developing countries and small and medium-sized enterprises (SMEs) may struggle to adapt due to a lack of access to green technologies and financial support. As a result, they face the risk of being excluded from global supply chains (Usman et al., 2024). This exclusion could lead to a loss of market share and competitive advantage in international trade, further deepening inequalities within global supply chains. Developed countries, with their technological and financial resources, can swiftly adapt and dominate the emerging green supply chains. In contrast, developing countries, constrained by limited resources, may become increasingly marginalized, hindering their economic growth (Demiral and Demiral, 2021). Tawiah et al. (2021) highlight that this uneven restructuring of supply chains not only impacts the economic development of developing countries but also compromises the fairness and inclusivity of global green trade.

In this process, due to the lack of sufficient regulatory constraints on corporate behavior and inadequate funding for environmental governance in developing countries (Demiral and Demiral, 2021; Falzon, 2023; Kammerer and Ingold, 2023), these countries not only fail to receive adequate support from foreign high-tech firms but also experience further degradation of their environment, leading to a net loss. Meanwhile, in developed countries, while the relocation of high-polluting enterprises may lead to environmental improvements, the reduction in domestic industries could cause rising unemployment and economic pressure, resulting in a decline in consumer purchasing power (Ajl, 2021; Brown et al., 2023). Consequently, global trade may stagnate, undermining the original goals of carbon reduction policies.

Conversely, some scholars have integrated the conclusions of the two hypotheses mentioned above. The Environmental Kuznets Curve (EKC) theory posits that environmental degradation is an inevitable consequence as trade develops (Agozie et al., 2022). This is because, in the early stages of trade expansion, friction in international cooperation occurs to varying degrees, which partially increases trade costs (Liu et al., 2020). Additionally, each country undergoes a process where pollution initially rises and then declines. In the early stages of economic development, there is often a lack of capital to invest in high-tech industries. Consequently, countries are compelled to foster low-cost but highly polluting businesses to accumulate capital, acquire advanced production technologies, introduce high-tech enterprises, upgrade their industrial structures, and promote local green development (Doğan et al., 2022). During this phase, sacrificing the environment to some extent is unavoidable for the initial growth of the local economy (Balsalobre-Lorente et al., 2022).

However, once a country’s economy has developed sufficiently, the principle of sustainable development suggests that people will gradually recognize that economic growth alone is unsustainable, and a healthy, green living environment is essential. At this stage, governments and enterprises will actively promote green industries, collaborate with other nations to establish a new trade paradigm, maintain a healthy trading environment, and jointly protect the environment (Konisky and Carley, 2021). Ultimately, global pollution will decrease, and a true harmony between humans and nature will be achieved.

Agozie et al. (2022) assert that the green transformation of global trade is a lengthy and challenging process. This is because it entails not only the upgrading of production and consumption patterns but also the modernization of transportation systems, human capital, and trade operations, among other areas. Until these aspects are effectively renewed and replaced, there is a risk of unintended consequences, potentially resulting in more severe environmental degradation. The emergence of new environmental challenges or trade barriers is a concern, given the high costs associated with manufacturing green products, the expense of utilizing renewable energy for transportation, and the reluctance of some countries to actively support the development of green industries (Liu et al., 2020; Tian et al., 2022). Consequently, countries must carefully consider the implications when vigorously promoting green trade.

In summary, the reduction of carbon emissions driven by green trade is not an immediate process. At the present stage, many countries have yet to transition away from high-polluting industries for production, which continue to serve as the backbone of economic development in most nations (Demiral and Demiral, 2021; Kammerer and Ingold, 2023). Consequently, regardless of whether the current trade focuses on green products or countries actively promote the use of clean energy, some degree of environmental pollution remains inevitable. Therefore, further research is needed to examine how green trade impacts carbon emissions, as it has the potential to either raise or lower them. Based on this, the study proposes the following hypothesis.

Hypothesis 1

Green trade will increase carbon emissions.

The concept of comparative advantage forms the theoretical basis for trade diversification. According to this theory, countries can leverage their unique advantages to engage in global trade in the most efficient way possible (Adedoyin et al., 2021). Within this framework, the context of free trade offers participating countries a more favorable trade environment, facilitating more convenient and diverse trade opportunities (Konisky and Carley, 2021).

In recent years, the increase in trade tariffs and carbon emissions taxes has led to a deteriorating trade environment. As a result, scholars are actively investigating the relationship between political stability, trade diversification, green trade, and carbon emissions (Kang and Lee, 2021; Cui et al., 2024). Unfortunately, this situation not only hampers the effective promotion of green trade but also obstructs the progress of global trade. Moreover, it potentially exacerbates the instability of international politics. Despite the UNFCCC and the Kyoto Protocol’s repeated assertions that nations should not use environmental protection as a pretext for trade protection (Kang, 2020; Kang and Lee, 2021), the practice of trade protection.

Liu et al. (2020) and Falzon (2023) highlighted that as public awareness of environmental protection increases, many countries have implemented relevant environmental taxes and policies to curb high energy consumption and restrict production by energy-intensive enterprises. While this has provided some level of protection for the local environment, certain companies and individuals, seeking to evade regulations, have relocated their high-consumption and energy-intensive operations to regions with less stringent environmental oversight. Consequently, this has led to increased pollution in those areas.

At the same time, some countries, aiming to safeguard domestic employment and their economic environment, have restricted excessive trade with numerous other nations, contributing to a trend of deglobalization. This limitation of trade to primarily one direction has intensified trade friction between countries (Rehman et al., 2021). In this process, these nations have compromised the economic interests of others for their own benefit, resulting in elevated trade costs for the countries left out (Dou et al., 2021). Although countries are actively promoting relevant green policies to develop a diversified pathway for recyclable green trade and to foster green development, such unfavorable trade environments are likely to give rise to new forms of environmental pollution (Wang et al., 2023).

The fundamental aim of green trade is to incorporate the concept of sustainable development, facilitating beneficial trade and economic exchanges that simultaneously protect the environment. It emphasizes the vigorous promotion of emerging technologies to foster diversified trade growth among nations, ultimately achieving economic circulation and jointly safeguarding the planet’s ecosystem (Kang and Lee, 2021). However, it is clear that the current trajectory of development is diverging from the original objectives of green trade advocates.

Harrison (2010) and Ajl (2021) argue that environmental governance has, in some cases, become a tool for political leverage by developed countries, where global influence grants priority over environmental stewardship. At this stage, environmental governance has transformed from a purely ecological concern into a political one. Some countries, seeking to gain an advantageous position in the international political and economic landscape, engage in trade protectionism under the guise of environmental preservation. In doing so, they disregard the interests of other nations and distort international trade by arbitrarily adjusting tariffs (Ajl, 2021; Böhringer et al., 2021; Falzon, 2023). Consequently, the international political climate has become increasingly turbulent (Şanlı and Gülbay Yiğiteli 2023). It is evident that only a stable political and economic environment can effectively support green trade and unite global efforts to collectively address environmental challenges. Jiang et al. (2022) emphasize that nations enacting trade protection laws must adopt a long-term perspective on economic growth, and these countries can only prioritize carbon emissions reduction against a backdrop of stability, security, and peace.

Green trade currently has a delayed impact on reducing carbon emissions. In fact, it may exacerbate environmental issues in the early stages of the green economy’s development. Given that mutual cooperation can help reduce carbon emissions, governments from various nations should convene to discuss how green trade can be advanced (Dou et al., 2021; Tian et al., 2022). Consequently, Chen et al. (2023) and Falzon (2023) highlight that only through the collective efforts of countries, utilizing healthy and appropriate methods to foster cooperation, actively maintaining international political stability, and ensuring a stable global economic environment, can more emerging technologies and talents be engaged in building the pathway to green development, ultimately achieving carbon reduction goals and creating a better global environment. Based on this, countries need to reduce current trade barriers, maintain political stability, and return to a state of free trade. Thus, the following Hypothesis 2 is proposed in this paper.

Hypothesis 2

Political stability acts as a moderating factor in the relationship between green trade and carbon emissions. Specifically, as the political climate becomes more stable, countries may reduce the negative impact of green trade on carbon emissions.

Indeed, according to relevant theories of classical economics, the diversified development of trade can only be truly promoted under the conditions of free trade. This, in turn, encourages the growth of the green economy and facilitates a genuine reduction in carbon emissions. Dai and Du (2023) suggest that governments must champion free trade to support the varied growth of green trade, especially since the current development of green products remains limited, and the influence of low-carbon sectors is relatively weak. Consequently, economically developed nations should actively assist developing countries in economic growth by helping them cultivate high-tech talent, fostering the development of diverse trade, and establishing themselves as leading nations. This support is crucial as most developing nations lack the technological expertise and talent required to drive the growth of green trade (Jiang et al., 2022). According to Wang et al. (2023), trade liberalization incentivizes countries to produce more environmentally friendly goods, fosters the diversified development of green sectors, and promotes varied trade growth. Furthermore, encouraging diverse trade can help nations better manage environmental challenges.

In conclusion, only by vigorously promoting diversified trade development can governments find truly suitable trading methods amid globalization, further develop green industries tailored to their countries, upgrade their industrial structures, position their countries advantageously in global trade, and achieve benign trade competition (Dai and Du, 2023). Baajike et al. (2024) point out that increasing trade barriers and advocating deglobalization will only cause a country to “derail” from the global economy, accelerating its economic decline. At the same time, the WTO also emphasizes that trade diversification and environmental protection, along with the interests of all countries, are not contradictory; they are complementary and mutually reinforcing. A favorable trade environment is essential to promote diversified trade development among countries, thereby achieving a rational allocation of resources and fostering harmonious coexistence between humans and nature. Therefore, this paper proposes Hypothesis 3.

Hypothesis 3

The impact of green trade on carbon emissions is moderated by trade diversification. Specifically, as nations diversify their trade, the positive effect of green trade on carbon emissions decreases, and in this context, green trade can ultimately have a negative impact on carbon emissions.

Studying the impact of green trade on carbon emissions in G20 countries is of great significance. These countries represent the majority of the global economy and trade, and their environmental policies and green trade practices have a decisive impact on global climate change and the achievement of carbon reduction goals. By analyzing the implementation effects of green trade in these countries, we can reveal the complex relationships between trade structure, environmental policies, and carbon emissions, providing a reference for countries to develop more effective green trade policies, thereby promoting the global economy’s transition towards a low-carbon and sustainable future. The G20 countries include: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union.

Since the world political landscape was rather steady throughout this time, data from 2000 to 2022 was used. Against this backdrop, countries actively promoted the development of globalization, leading to rapid growth in international trade. Thus, it would be more beneficial to carry out empirical study on green trade and carbon emissions at this time in order to better understand how the two are related to one another as well as the moderating function that political stability has in this connection. Additionally, during this period, trade between countries became more frequent, and the diversification of trade would have a more pronounced moderating effect on green trade and carbon emissions. The data for various variables mainly come from the Wind database and the United Nations (UN) Comtrade database. To ensure the scientific rigor and accuracy of the empirical analysis, and to minimize the impact of variable heteroscedasticity, this study logarithmically transformed absolute values such as green trade, political stability, trade diversification, total labor force, foreign direct investment, renewable energy consumption, and per capita GDP. Descriptive statistics for each variable are shown in Table 2.

In order to ensure data stationarity, this study first performed panel cointegration and unit root tests, the results of which are displayed in Table 3.

(1) All variables passed at least one of the Hadri and Fisher unit root tests, suggesting that the variables chosen are appropriate;

OLS regression is used in this study to investigate the connection between carbon emissions and green trade. The reason for choosing OLS regression in this paper is based on the following reasons: Firstly, the OLS model is highly interpretable and convenient to compute. The basic principle of the OLS model is to obtain the best fit line by minimizing the squared difference between the predicted and actual values, which makes it easier for us to explain the meaning of the regression coefficients. Additionally, the OLS model has a closed-form solution, and parameter estimates can be quickly obtained through simple matrix operations without the need for complex algorithms or substantial computational resources. Secondly, the OLS model has good statistical properties. Under the assumptions of the classical linear regression model (such as linear relationship, homoscedasticity, no autocorrelation, normal distribution of error terms, etc.), the OLS estimator is the Best Linear Unbiased Estimator (BLUE). This means that the OLS estimator has the smallest variance among all linear unbiased estimators. Therefore, under the assumed conditions, its expected value equals the true parameter value. Lastly, the OLS model has broad applicability and is easy to diagnose and correct. OLS regression performs well with large samples and can provide reliable estimates even with a large sample size.

Therefore, given the context of panel data on G20 countries in this paper, using the OLS model will be more helpful in analyzing the impact of green trade on carbon emissions. The fixed effects model was chosen and Hausman tests were performed in the manuscript prior to OLS regression. The OLS model developed in this work is regarded as scientifically sound because of the improved goodness of fit that was achieved with the fixed effects model.

At the 5% significance level, Table 4 (1) shows a substantial positive association (coefficient of 0.647) between carbon emissions pco 2 and green trade l n g t , suggesting that green trade raises carbon emissions. Granted, green commerce encompasses a broad spectrum of products and associated services, and in its infancy it might not succeed in meeting carbon reduction targets. The following are the current causes of the rise in carbon emissions from green trade: Firstly, in order to build green industries, nations must heavily engage in the search for new energy sources, the application of cutting-edge technology, and the development of highly skilled laborers. All of these activities will eventually result in increased energy consumption and carbon emissions. Secondly, the new energy sources replacing oil and coal are difficult to find, and the production costs are relatively high for current technologies, which will also cause some environmental damage in the process. At the same time, the technologies and methods for recycling emerging energy and products are limited. If countries blindly promote the use of these green products, the waste generated from the production and use of these green products will not be effectively treated, leading to a new round of pollution to our earth, thereby increasing more carbon emissions. Finally, the green transportation methods advocated by many scholars at present are bound to increase longer transportation distances and transportation costs, which will instead have a negative impact on the environment and increase carbon emissions. Therefore, hypothesis 1 is confirmed.

Simultaneously, empirical findings demonstrate that, at the 1% significance level, the total labor force l n l abor has a substantial positive correlation (coefficient of 0.027), suggesting that a rise in the labor force will encourage carbon emissions. According to the marginal cost theory, there is a limit to the total labor force needed by society. If the total labor force exceeds this limit, society will incur additional costs to manage the surplus labor force, inevitably increasing social burden and carbon emissions. Furthermore, at the 5% significance level, there is a substantial positive association between foreign direct investment l n f d i and carbon emissions (coefficient of 0.215), suggesting that rising foreign direct investment will lead to rising carbon emissions. This is because some enterprises receiving foreign direct investment tend to choose countries with low production costs and environmental costs for investment. These recipient countries mostly have low technological levels and low production efficiency, and can only develop labor-intensive, highly polluting enterprises. Even if these enterprises consciously protect the environment, provide advanced technology to the recipient country, and actively cultivate high-quality local talents, the insufficient productivity of the recipient country will inevitably increase the local environmental burden and carbon emissions when introducing foreign direct investment. This is unavoidable. In addition, the use of renewable energy r e e n e r g y shows a strong negative correlation (coefficient of −0.06) at the 1% significance level, suggesting that it will reduce carbon emissions. Since most carbon emissions come from the use of oil and coal, if countries can better utilize renewable energy, it will effectively reduce global emissions of gases and waste and achieve carbon emission reduction goals. Finally, at the 1% significance level, per capita GDP p g d p exhibits a significant negative association with a coefficient of −0.000, suggesting that it will decrease carbon emissions. Per capita GDP does, after all, indicate a nation’s strength both economically and technologically. A nation’s technical and inventive levels are directly correlated with its per capita GDP. As a result, more expertise and technology will be available to support the growth of green sectors, which will ultimately advance environmental protection and reduce carbon emissions.

The above study leads to the conclusion that trade diversification and political stability both somewhat offset the carbon emission-reducing benefits of green trade. In order to investigate the moderating effects of political stability and trade diversification, this research presents a moderating effect regression and includes interaction factors between political stability and green trade as well as between trade diversification and green trade. Tables 5 (2) and (3) present the findings. Table 5 (2) shows that political stability l n p o l i has a substantial negative correlation at the 5% level, with a value of −10.153. Simultaneously, the interaction term between political stability and green trade c e n t p o l has a significant positive connection at the 5% level, with a value of 0.453, which is less than the coefficient of green trade on carbon emissions in the OLS model. This indicates that a more stable international environment will facilitate joint environmental governance among countries, leading to carbon emission reduction. Furthermore, when political stability increases, the incentive impact of green trade on carbon emissions diminishes. Therefore, hypothesis 2 is confirmed. Only under conditions of peaceful and mutually beneficial international environments can enterprises and individuals have the confidence to engage in green production and consumption. Then and only afterwards will nations be able to concentrate on environmental problems and encourage the growth of the green sector.

At the 1% significance level, trade diversification t r a d e p has a substantial negative correlation with a coefficient of −10.166, as shown in Table 5 (3). Furthermore, with a value of −2.439, the interaction term between trade diversification and green trade c e n t t r a d e exhibits a significant negative connection at the 1% significance level. This suggests that trade diversification can lower carbon emissions and that, as trade diversifies, the influence of green trade on carbon emissions will change from being one of promotion to restriction. In other words, in an environment of open trade, countries can significantly suppress carbon emissions through green trade while promoting trade diversification. Therefore, hypothesis 3 is confirmed. Indeed, in the process of promoting trade diversification, countries will identify their strengths and weaknesses in the green trade chain, which will help strengthen communication and cooperation among countries, collectively address obstacles in promoting green trade development, achieve complementarity of advantages, resource integration, and truly realize the concept of carbon neutrality.

This research also presents a quantile regression model, choosing the 0.1–0.9 quantiles to assess the influence of green trade on carbon emissions. This allows for a more thorough examination of the effects of green trade on carbon emissions at various quantiles. In contrast to ordinary least squares regression, quantile regression simultaneously calculates the regression coefficients at various quantiles in addition to concentrating on determining the dependent variable’s mean. Put differently, it offers a more thorough and adaptable approach to data analysis, assisting us in comprehending how the dependent variable varies under various circumstances (Koenker and Bassett, 1978). Table 5 presents the regression findings.

The OLS regression results are consistent with the quantile regression results from Table 5, which indicate that all of the green trade l n g t coefficients are positive and exhibit a pattern of progressive increase from low to high quantiles. Moreover, it exhibits a significant positive correlation when carbon emissions pco 2 reach the maximum emission value (at the 0.9 quantile), with a coefficient of 0.593. This indicates that the promotional effect of green trade on carbon emissions is not significant at the middle and low quantiles due to lower carbon emissions. A reasonable explanation is that when carbon emissions are low, the global environmental conditions are relatively good, and the negative impact brought by green trade is not very pronounced, as the natural environment itself can purify the pollution of these gases and wastes. Green trade, however, significantly increases carbon emissions at higher quantiles. This is because, at this point, the environment in various countries has already suffered serious damage and pollution due to increased production activities, resulting in a substantial accumulation of carbon emissions from sacrificing the environment for economic achievements. The self-healing ability of the environment has been lost. If countries want to promote green production and achieve sustainable development through trade at this stage, it will inevitably lead to further environmental damage in the early stages of development.

At this point, the ecosystem no longer has the capacity to heal itself very well, and the encouragement of green trade will result in a sharp rise in carbon emissions. Governments all throughout the world are likewise faced with this conundrum (Demiral and Demiral, 2021): the current environmental issues on Earth are extremely severe. If industrial restructuring is not carried out to achieve green development, these high-polluting and energy-consuming enterprises will further damage the environment, and humanity will eventually lose its Earth home. However, in the process of seeking new energy and new production methods, due to the limitations of existing technologies and Earth’s resources, it will generate more environmental costs, which is undoubtedly adding insult to injury to the already heavily polluted environment. Therefore, governments worldwide need to work together to shoulder the responsibility of protecting the environment, promoting the development of the green industry at minimal costs, forming an efficient and low-pollution green trade model, and achieving carbon neutrality goals.