The impact of climate aid on carbon emissions reduction and the role of renewable energy: evidence from the Belt and Road countries

Full mobilization and effective use of climate aid is of great importance for the low carbon transition of Belt and Road Initiative (BRI) countries. This study utilizes the two-step system generalized method of moments model to evaluate the effects of climate aid on carbon emissions reduction and the impact mechanism through energy structure optimization. The panel data of 93 Belt and Road countries from 2000 to 2018 were used for empirical analysis. Results show that climate aid has a significant reduction effect on the carbon emissions intensity of BRI countries, and the dominant component of climate aid, i.e., mitigation aid, corresponds to better carbon emissions reduction benefits than adaptation aid. The impact mechanism demonstrates that the climate aid has dual carbon emissions reduction effects in BRI countries which have an intermediate energy structure. It indicates that climate aid not only directly reduces carbon emissions by increasing carbon reduction resources, but also indirectly reduces carbon emissions by promoting renewable energy and optimizing the energy structure. The results evidence the theory of environmental Kuznets curve hypothesis and channels of climate aid effects. Practical implications from the current study include that more climate finance support should be provided to BRI countries by developed countries, the effectiveness of climate aid should be improved by investing in projects with significant carbon reduction like renewable energy, data monitoring and performance evaluation of climate aid should be strengthened, and China should take its role and make more contributions to the low carbon transition especially energy transition of BRI countries.