Journal of Cleaner Production 426 (2023) 139026

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Impact of carbon footprint of bank loans and fossil fuel subsidies on

ecological footprint in Tunisia: A contingency and asymmetric analysis
Maureen Ifeoma Iyke-Ofoedu a, Nnenna G. Nwonye b, Ishaku Prince Abner c, Hillary
Chijindu Ezeaku d, Obinna Ubani e, *
a
Department of Management, University of Nigeria, Enugu Campus, Nigeria
b
Department of Banking and Finance, University of Nigeria, Enugu Campus, Nigeria
c
Coordinator Oil, Gas and Energy Unit, University of Abuja Business School, Abuja, Nigeria
d
Department of Banking and Finance, Caritas University Enugu, Nigeria
e
Department of Urban and Regional Planning, University of Nigeria, Enugu Campus, Nigeria

A R T I C L E I N F O A B S T R A C T

Handling Editor: Jing Meng This study examines the impact of the carbon footprint of bank loans (CFBL) and fossil fuel subsidies (TFFS) on
the ecological footprint of Tunisia using a linear and nonlinear ARDL framework. The study found that a 1%
Keywords: increase in CFBL is associated with a 0.15% increase in ecological footprint, whereas a 1% increase in TFFS is
Carbon footprint correlated with a 0.80% increase in ecological footprint. This suggests that fossil fuel subsidies have a larger
Fossil fuel subsidies
detrimental impact on the ecological footprint compared to CFBL. The results provide evidence of an asymmetric
Ecological footprint
relationship between CFBL, TFFS, and ecological footprints. Specifically, CFBL has a significant positive asso­
Environmental taxation
Sustainability ciation with ecological footprint, with a 1% increase in CFBL associated with a 0.01% increase in ecological
footprint, while a 1% decrease in CFBL results in a 0.002% increase in ecological footprint. TFFS has a more
pronounced impact on ecological footprint, with a 1% increase associated with a 0.14% decrease and a 1%
decrease associated with a 0.30% decrease, which is twice as large. The findings suggest that positive shocks in
environmental taxation lead to a 0.54% decrease in ecological footprints, while negative shocks have a pro­
foundly detrimental effect with a 1.33% increase in ecological footprints. Additionally, the interaction effect
indicates that the effectiveness of CFBL and TFFS on ecological footprints is contingent on the level of envi­
ronmental tax. The result shows that with a 1% increase in environmental tax, the negative impact of CFBL and
TFFS on ecological footprints decreases by 0.02% and 0.09%, respectively. These findings underscore the
importance of reducing carbon emissions and fossil fuel subsidies and implementing effective environmental
taxation policies to promote sustainability and mitigate environmental damage.

1. Introduction in funding activities that contribute to greenhouse gas emissions,

In light of mounting global concerns regarding climate change and
environmental sustainability, the role of bank loans in financing in­
dustries with varying carbon intensity has come under increased scru­
tiny (Németh-Durkó, 2020). This heightened awareness underscores the
urgent need for financial institutions to reevaluate their investments in
environmentally detrimental projects (Takahashi and Shino, 2023).
Given its significant influence on capital allocation, the finance industry
emerges as a pivotal player in achieving environmental sustainability
goals (WWF & Greenpeace, 2021). Specifically, banks play a crucial role
resulting in a substantial carbon footprint and associated environmental
repercussions, including air and water pollution, deforestation, and
biodiversity loss (Dogan et al., 2019). The staggering extent of support,
with the 60 largest global banks alone extending USD$3.8 trillion to the
fossil fuel industry, further underscores the critical importance of scru­
tinizing lending practices (Banking on Climate Chaos, 2021).
In alignment with this momentum, Japanese banks have signifi­
cantly reduced loans to companies with elevated greenhouse gas emis­
sions, especially within the context of sustainable investing (Takahashi
and Shino, 2023). This aligns with the assertion of Herbohn et al. (2019),

* Corresponding author.
E-mail addresses: maureen.iyke-ofoedu@unn.edu.ng (M.I. Iyke-Ofoedu), nnenna.nwonye@unn.edu.ng (N.G. Nwonye), ishaku.abner@uniabuja.edu.ng
(I.P. Abner), gijindu@gmail.com (H.C. Ezeaku), obinna.ubani@unn.edu.ng (O. Ubani).

https://doi.org/10.1016/j.jclepro.2023.139026
Received 5 May 2023; Received in revised form 21 September 2023; Accepted 25 September 2023
Available online 26 September 2023
0959-6526/© 2023 Elsevier Ltd. All rights reserved.
M.I. Iyke-Ofoedu et al.
who posit that investors now expect banks to factor in carbon risk in
their lending deliberations. These observations underscore the enduring
global commitment to Environmental, Social, and Governance (ESG)
initiatives, aimed at advancing environmental sustainability and
diminishing ecological footprints.
The nexus between the carbon footprint of bank loans and Tunisia’s
ecological footprint is a multifaceted interplay influenced by economic
growth, energy pricing, government policies, technological progress,
and the global context. A comprehensive understanding of these dy­
namics is imperative in formulating effective strategies that promote
environmental sustainability without compromising economic progress.
Further, fossil fuel subsidies have also been pinpointed as a signifi­
cant driver behind the escalating ecological footprints observed world­
wide (Li and Sun, 2018). The production and consumption of fossil fuels
carry a gamut of detrimental environmental consequences, including air
and water pollution, deforestation, and habitat destruction (Asselt,
2018). These subsidies can be categorized into two primary forms:
explicit and implicit. Explicit subsidies involve direct financial transfers,
while implicit subsidies encompass more indirect forms, such as failing
to account for environmental costs or inadequately enforcing regula­
tions. Fossil fuel subsidies primarily consist of support for exploration
and production, consumption incentives, and infrastructure and trans­
portation assistance. The cumulative impact of these activities exerts
adverse effects on the ecological footprint.
In essence, the ecological footprint serves as a comprehensive metric
for assessing the environmental impact of human activities, encapsu­
lating changes in land use and total energy consumption during pro­
duction. It quantifies the biologically productive land and water
required for resource production and waste assimilation. Beyond its role
in the carbon cycle, this metric encompasses critical ecological pro­
cesses, including water utilization, biodiversity loss, and land degrada­
tion (Zambrano-Monserrate et al., 2020). Expressed in global hectares
(gha), this measure symbolizes the average biologically productive area
necessary to sustain the consumption and waste generation of an indi­
vidual. Tunisia emerges as a compelling focal point for this study,
epitomizing a nation making significant inroads in curbing its carbon
footprint and championing environmental sustainability. Simulta­
neously, it confronts challenges linked to energy security and reliance on
fossil fuels.
The empirical data from the IMF climate change database and the
Mendeley dataset for various years demonstrate a clear correlation be­
tween the percentage of carbon footprint-adjusted loans (% of Total
Loans) and the Ecological Footprint per capita in Tunisia. Over the
observed years, an increase in the percentage of carbon footprint-
adjusted loans corresponds with a rise in the Ecological Footprint per
capita. For example, in 2012, with carbon footprint-adjusted loans at
115.335% of total loans, the ecological footprint per capita was 2.170.
This indicates a substantial impact of bank loans, particularly those
associated with carbon-intensive industries, on the overall ecological
footprint of the country. The data further reinforces this relationship,
illustrating the link between total fossil fuel subsidies (% of GDP) and
ecological footprint per capita. In 2013, with fossil fuel subsidies ac­
counting for 11.739% of Tunisia’s GDP, the ecological footprint per
capita was 2.170. This suggests that both explicit and implicit fossil fuel
subsidies contribute to a larger ecological footprint by promoting
carbon-intensive practices and impeding the transition to more sus­
tainable alternatives. They underscore the urgency for targeted and
informed policy measures to foster a more sustainable future.
As a middle-income nation with an evolving financial sector, Tunisia
presents a distinctive context for examining the influence of the carbon
footprint of bank loans and implicit fossil fuel subsidies on ecological
footprint, alongside the potential mitigating effects of environmental tax
and technological innovation. Its status as the sole African country with
accessible data on the carbon footprint of bank loans renders it a
particularly intriguing subject of inquiry. Insights gleaned from com­
prehending this dynamic can offer invaluable guidance to other
2
Journal of Cleaner Production 426 (2023) 139026
developing countries and emerging markets grappling with analogous
dilemmas of balancing economic expansion with environmental well-
being.
This study endeavours to bridge two critical research gaps. Firstly,
while existing studies have delved into the impact of carbon footprint on
environmental sustainability, the comprehensive effect of total fossil
fuel subsidies (encompassing both implicit and explicit subsidies) on
ecological footprint remains underexplored. Prior studies have not suf­
ficiently probed the role of these subsidies in shaping the ecological
footprint, thereby limiting our grasp of the complete environmental
impact of fossil fuel utilization. Secondly, antecedent investigations
scrutinizing the interplay between financial development and environ­
mental sustainability bear certain limitations. They often employ
banking sector credit as a surrogate for financial development, yet fail to
differentiate loans designated for carbon-emitting purposes from those
earmarked for eco-friendly initiatives. This lack of granularity impedes
an accurate assessment of financial development’s specific influence on
environmental sustainability.
To redress these lacunae, this study scrutinizes the relationship be­
tween the carbon footprint of bank loans and fossil fuel subsidies, both
explicit and implicit. It encompasses a comprehensive array of fossil fuel
subsidies, encompassing facets like accidents, coal, congestion, elec­
tricity, forgone VAT, global warming, local air pollution, natural gas,
petroleum, and road damage. By factoring in these elements, the study
aspires to provide a more thorough comprehension of how carbon-
embodied bank lending and fossil fuel subsidies shape the environment.
Moreover, this study introduces a fresh perspective by investigating
the burgeoning impact of environmental policy and innovation in
attaining net-zero targets. The incorporation of interaction terms in this
study facilitates an evaluation of whether and how environmental tax
may aid in mitigating the adverse effects of carbon footprint and fossil
fuel subsidies on the environment. This facet enriches the analysis by
contemplating potential policy interventions to address the environ­
mental challenges posed by the financial sector.
This study holds significant importance in augmenting the existing
body of knowledge regarding the complex interrelationships among the
financial sector, energy sector, and the environment. It provides crucial
insights for policymakers in developing and emerging economies. Ulti­
mately, it aims to inform decisions aligned with net-zero and sustain­
ability goals.
2. Literature review
2.1. Fossil fuel subsidies and ecological footprint
Climate change is a critical global concern, with the financial sector’s
role in mitigating it being crucial. This literature review examines the
influence of bank loans and implicit fossil fuel subsidies on ecological
footprint, aiming to inform policy interventions for a sustainable, low-
carbon economy.
Achieving ambitious emissions mitigation targets requires the crit­
ical reform of fossil fuel subsidies (Rentschler and Bazilian, 2017). The
removal of fossil fuel subsidies is often motivated by the fact that these
subsidies promote over-consumption of energy, which in turn has a
detrimental effect on environmental quality (Burniaux and Château,
2014). Kotchen (2021) estimated that implicit fossil fuel subsidies in the
United States result in a direct benefit of $62 billion per year to fossil fuel
producers. These subsidies arise due to unpriced environmental and
public health costs. The financial benefit is comparable to 18% of net
income for the median natural gas and oil producer and exceeds net
income for most coal producers. Although the study is limited to only
implicit fossil fuel subsidies, the results shed light on the domestic fossil
fuel industry’s financial stake in policies addressing climate change,
local pollution, and transportation inefficiencies.
In a study conducted by Solarin (2020) using the GMM approach, the
impact of fossil fuel subsidies on environmental degradation was
M.I. Iyke-Ofoedu et al.
analyzed in 35 emerging and developing countries. The results of the
study showed that an increase in fossil fuel subsidies leads to an increase
in ecological footprint. It is worth noting that the study did not specify
the type of fossil fuel subsidies examined, but it did account for only four
out of the five components of total (implicit and explicit) fossil fuel
subsidies, leaving a gap in the analysis. In a related study, Wesseh et al.
(2016) discovered that energy subsidies significantly reduce environ­
mental quality in Ghana. However, their study solely concentrated on
CO2 emissions, which does not provide a complete picture of the envi­
ronmental impact as compared to ecological footprint. In a study con­
ducted by Hadj (2021), the impact of biomass energy consumption on
ecological footprint was examined in an economy dependent on fossil
fuels using the nonlinear ARDL technique. The study findings indicate
that fossil fuel energy and natural resource rents have a negative effect
on the ecological footprint. On the other hand, positive biomass energy
consumption results in a decrease in ecological footprint, both in the
short and long term. Further, in a study by Lu et al. (2021), an assess­
ment of different water scenarios revealed that Sea-RO and
On-reclamation exhibited greater environmental impacts, primarily
attributed to their high energy demands.
Previous studies have examined the drivers of emissions in various
countries and identified the existence of the Environmental Kuznets
Curve (EKC) hypothesis, which suggests that environmental degradation
increases with economic growth up to a certain point, after which it
declines. For example, Acheampong et al. (2019) found that FDI and
renewable energy reduce CO2 emissions, while trade openness, financial
development, and population growth increase emissions in 46
sub-Saharan African nations, and the EKC hypothesis is supported. In a
related study Al-Mulali et al. (2016) found that real GDP, financial
development, and urbanization positively affect emissions in 107
countries, and the EKC hypothesis is supported in developing countries.
Conversely, Shahbaz et al. (2015) found that real GDP and energy in­
tensity increase emissions, while globalization decreases emissions in 19
African countries, and there is limited evidence supporting the EKC
hypothesis in the countries under investigation. Existing research on
emissions drivers and the Environmental Kuznets Curve (EKC) hypoth­
esis lacks sufficient investigation into the influence of fossil fuel sub­
sidies on emissions. Additionally, this limited research fails to address
the asymmetric effect of fuel subsidies, underscoring the need for further
empirical inquiry.
2.2. Carbon footprint of bank loans and ecological footprint
Although the impact of fossil fuel subsidies on the environment is
still a developing area of study, a growing body of literature has started
to explore the environmental effects of financial sector activities. Ana­
lyses from various jurisdictions, including the OECD (Radulescu et al.,
2022), the US (Chaudhry et al., 2021), Italy (Faiella and Lavecchia,
2020), and Turkey (Yurtsever and Fırat, 2019), suggest a consensus that
banking development has a negative impact on ecological sustainability.
Mishra and Dash (2022) and Ruza and Caro-Carretero (2022) both
investigate the relationship between financial development and envi­
ronmental quality. While Mishra and Dash (2022) find that financial
development is inversely related to the carbon ecological footprint, Ruza
and Caro-Carretero (2022) show that the impact of financial develop­
ment on environmental sustainability is monotonically positive and
statistically significant. The contrasting findings could be due to differ­
ences in the sample, jusrisdiction and the estimation techniques used.
Nevertheless, both studies suggest that the relationship between finan­
cial development and environmental quality is complex and requires
further investigation.
Amjad et al. (2021) investigate the role of financial development in
reducing environmental pollution and enhancing sustainable economic
development in Pakistan. The study finds that positive shocks of finan­
cial development reduce environmental pollution, highlighting the po­
tential for financial development to promote sustainability. Feng et al.
3
Journal of Cleaner Production 426 (2023) 139026
(2022) also highlight the potential of digital financial development to
promote sustainable development from an ecological footprint
perspective in China. The study shows that bridging the digital divide,
improving environmental constraints, and government digital gover­
nance capacity can help amplify the marginal effects of digital finance
and mitigate ecological footprint.
Further, Omoke et al. (2020) conducted a study on the nonlinear
dynamic effects of financial development on ecological footprint in
Nigeria. They found that a positive shock in financial development leads
to a significant reduction in ecological footprint, while a negative shock
has the opposite effect. This underscores the significance of sustainable
financial development in promoting sustainability. However, the exist­
ing literature has limitations in terms of not considering the potential
mediating role of environmental policy tools and exploring the asym­
metric context of the relationship, with only Omoke et al. (2020) con­
ducting a nonlinear assessment of the financial activity-sustainability
nexus.
Radulescu et al. (2022) investigated the impact of banking devel­
opment, renewable energy consumption, and economic growth on the
ecological footprint of 27 OECD countries from 1990 to 2018 using the
method of moments quantile regression (MMQR). The results revealed
that a 1% increase in banking expansion in OECD nations led to an in­
crease in ecological footprint across all quantiles. Meanwhile, Faiella
and Lavecchia (2020) contend that the carbon footprint of Italian bank
loans is relatively small compared to their European counterparts.
Additionally, they estimated that outstanding loans exposed to transi­
tion risk could range between 37% and 53% of total loans based on data
from 2018.
Singh et al. (2023) posit that the influence of financial inclusion is
more pronounced in higher quantiles, suggesting that in nations with
already elevated ecological footprint levels, financial inclusion tends to
bolster ecological impact. Furthermore, Abid et al. (2023), employing
Panel quantile regression across 18 European countries, assert that
climate change mitigation advances environmental progress univer­
sally, with energy selection playing a pivotal role in solidifying these
mitigation endeavors. Within the sphere of G10 economies, Abid et al.
(2023b) discovered that robust environmental regulations and the
adoption of renewable energy sources lead to a substantial reduction in
material footprint.
The literature reviewed in this study sheds light on the intricate
relationship between financial development, carbon emissions, and
environmental quality. Despite the limited related literature, the find­
ings clearly demonstrate the potential of financial development to pro­
mote sustainability, emphasizing the importance of aligning lending
practices with environmental objectives. It is evident that the economic
incentives that drive implicit fossil fuel subsidies underscore the need for
immediate policy interventions that promote sustainable development.
Therefore, this review highlights the significance of further investigating
the link between financial development, fossil fuel subsidies and envi­
ronmental sustainability to identify the best strategies for promoting
sustainable economic growth while reducing ecological footprints.
The literature reviewed in this study sheds light on the intricate
relationship between financial development, carbon emissions, and
environmental quality. Despite the limited related literature, the find­
ings clearly demonstrate the potential of financial development to pro­
mote sustainability, emphasizing the importance of aligning lending
practices with environmental objectives. It is evident that the economic
incentives that drive implicit fossil fuel subsidies underscore the need for
immediate policy interventions that promote sustainable development.
Therefore, this review highlights the significance of further investigating
the link between financial development, fossil fuel subsidies and envi­
ronmental sustainability to identify the best strategies for promoting
sustainable economic growth while reducing ecological footprints.
This study addresses a gap in financial development-environmental
sustainability research by focusing on bank loans allocated for non-
environmentally sustainable purposes. It emphasizes the need for
M.I. Iyke-Ofoedu et al.
more data in African developing economies. Additionally, it aims to
investigate the potential impact of environmental policies on mitigating
the environmental effects of bank loans’ carbon footprint and fossil fuel
subsidies, an area not yet explored in existing studies.
3. Data and methodology
Fig. 1 presents the flow chart outlining the strategy for Autore­
gressive Distributed Lag (ARDL) modeling. The diagram offers a visual
depiction of the step-by-step process involved in constructing and
executing an ARDL model using time series data.
3.1. Data
The aim of this study is to investigate the impact of carbon footprint
of bank loans and implicit fossil fuel subsidies on ecological footprint.
The study exclusively utilizes secondary data, primarily obtained from
the IMF Climate Change database and the World Development In­
dicators database. The study focuses on Tunisia, and covers the period
from 1995 to 2021. The main variables of interest are the ecological
footprint (the dependent variable) and the carbon footprint of bank
loans and total fossil fuel subsidies (the main independent variables).
The total fossil fuel subsidies encompass both explicit and implicit
subsidies on coal, natural gas, petroleum, electricity, congestion, acci­
dents, forgone VAT, global warming, road damage, and local air
pollution.
In addition to the main variables, the study incorporates three con­
trol variables: environmental tax, exports of low-carbon technology
products, and foreign direct investment. Environmental tax is used to
measure the influence of environmental regulation on the ecological
footprint, and to assess if it can mitigate negative externalities. Exports
of low-carbon technology products serve as a proxy for technological
innovation and help to assess the impact of technological advancement
Fig. 1. Flow chart of Structural Vector Autoregression (SVAR) modeling strategy.
4
Journal of Cleaner Production 426 (2023) 139026
on the ecological footprint. Finally, foreign direct investment is included
as a control variable to account for the effect of globalization on the
planet’s ecological capacity. Table 1 presents a more detailed descrip­
tion of the model variables.
Fig. 2 provides a visual representation of the significant impact of
financial decisions and subsidies on Tunisia’s ecological footprint. The
data reveals a noticeable fluctuation in carbon footprint-adjusted loans
as a percentage of total loans over the past few decades in Tunisia.
Starting at approximately 91.2% in 1995, this metric witnessed a steady
increase, reaching its peak at 119.8% in 2013, before experiencing a
gradual decline. This upward trend might signify a period of heightened
investment in sectors associated with higher carbon emissions. In­
dustries such as manufacturing, energy production, and transportation
could have been the beneficiaries of these loans. However, this trajec­
tory raises concerns about the environmental implications and long-
term sustainability of such investments.
The data also sheds light on the allocation of resources towards Total
Fossil Fuel Subsidies, expressed as a percentage of GDP. The figures start
at 7.9% in 1995, experiencing a significant spike to 13.2% in 1999,
before displaying a fluctuating pattern over the subsequent years. This
pattern indicates a notable dependence on traditional energy sources
and suggests a substantial portion of Tunisia’s economic resources are
directed towards supporting fossil fuel-related industries. While sub­
sidies can be crucial for economic stability and accessibility to energy,
the high percentage of GDP allocated to this purpose raises questions
about sustainability and environmental impact.
The ecological footprint per capita, a crucial measure of an in­
dividual’s environmental impact, demonstrates a relatively stable
pattern over the years. Starting at 2.19 in 1995, this metric fluctuated
before stabilizing around 2.17 to 2.18 from 2011 onwards. This stability
indicates that, on average, the environmental impact of each person in
Tunisia has remained relatively consistent over the past decade. While
this suggests that efforts to control individual environmental impact
M.I. Iyke-Ofoedu et al. Journal of Cleaner Production 426 (2023) 139026

Table 1
Description of model variables.
Variable Description Measure Designation Source

ECFP Ecological Footprint per capita: refers to the impact of human activities on the Ratio Response Mendeley Dataset
environment, specifically in terms of the amount of natural resources used and waste Variable
produced. It is a measure of the demand that human populations place on the planet’s
ecosystems and their ability to regenerate those resources. The ecological footprint
takes into account factors such as energy consumption, food production, transportation,
and waste disposal to calculate the amount of land and water needed to sustain human
activities.
CFBL Carbon Footprint-Adjusted Loans: refers to the measurement of the carbon emissions % of Total Loans for Deposit Independent IMF climate
resulting from the activities funded by bank loans. It is a calculation that takes into Takers; Based on Emission Variable change database
account the total amount of loans issued by a bank and the associated carbon footprint Multipliers
of the activities financed by those loans. The carbon footprint is measured using
emission multipliers that estimate the greenhouse gas emissions produced by the
industries and businesses supported by the loans.
TFFSa Total Fossil Fuel Subsidies (% of GDP): refers to the financial support provided by % of GDP Independent IMF climate
governments to the fossil fuel industry, expressed as a percentage of a country’s gross Variable change database
domestic product (GDP). Fossil fuel subsidies can take the form of direct financial
transfers, tax breaks, or other forms of support that reduce the costs of production and
consumption of fossil fuels.
ENVTX Environmental Tax: refers to a type of tax that is levied on activities or products that % of GDP Control Variable IMF climate
have a negative impact on the environment. The aim of an environmental tax is to change database
discourage such activities or products and encourage more sustainable practices that
are less harmful to the environment.
TINOV Exports of low carbon technology products: refers to the exports of goods and services % of GDP Control Variable IMF climate
that are designed to mitigate climate change and reduce greenhouse gas emissions. change database
These low carbon technology products include renewable energy technologies such as
solar panels, wind turbines, and hydroelectric generators, as well as energy-efficient
appliances, electric vehicles, and sustainable building materials. This serves as a proxy
for technological innovation
FDI Foreign direct investment: refers to the net inflow of investments that result in acquiring % of GDP Control Variable WDI
a management interest of 10% or more in an enterprise that operates in an economy
other than that of the investor. The term encompasses various forms of investments,
including equity capital, reinvestment of earnings, other long-term capital, and short-
term capital, as reflected in the balance of payments. This series represents the net
inflow of new investments, deducting disinvestment, in the reporting economy from
foreign investors. It is expressed as a ratio to the GDP. This is used as a proxy for
globalization.
a
Note: Total fossil fuel subsidies are made up of explicit and implicit subsidies. Explicit subsidies are those that are easily identifiable and accounted for, such as
direct payments to fossil fuel producers. Implicit subsidies, on the other hand, are those that are not directly visible, such as the cost of environmental damage caused
by fossil fuel use, or the cost of providing health care for those affected by air pollution.

have been somewhat successful, there is room for further improvement. Fossil Fuel Subsidies) and the moderating variables (Environmental tax
and technological innovation). By doing so, the study can assess the
effect of these moderating variables on the relationship between the
3.2. Empirical framework
main explanatory variables and ecological footprint.
The ARDL model is a powerful tool for analyzing the dynamic re­
This study is grounded in established theories in environmental
lationships between economic variables and environmental outcomes.
economics and finance, focusing on the impact of bank loan carbon
This makes it well-suited for studying the impact of economic activities
footprints and fossil fuel subsidies on ecological footprints. It employs
and environmental policies on ecological footprint. By using the ARDL
the ecological footprint framework, which measures the land and water
model, this study can provide valuable insights into the relationship
area needed for goods and services consumed. This allows an assessment
between Carbon Footprint of Bank loans, Implicit Fossil Fuel Subsidies,
of the ecological impact of banks’ financing activities, including fossil
and ecological footprint, and identify potential strategies for mitigating
fuel-related impacts. The purpose of this study is to investigate the
the impact of these variables on the environment.
relationship between the impact of Carbon Footprint of Bank loans,
Implicit Fossil Fuel Subsidies, and ecological footprint. The hypothesis
3.2.1. Autoregressive Distributed Lag (ARDL) approach
posits that an increase in Carbon Footprint of Bank loans and Implicit
The ARDL model is an approach for analyzing the dynamic rela­
Fossil Fuel Subsidies will lead to a shift in ecological footprint. To test
tionship between variables in a cointegrated system and addressing
this hypothesis, the study employs the Autoregressive Distributed Lag
endogeneity concerns. It extends the traditional Engle-Granger two-step
(ARDL) model, a popular econometric technique used to analyze the
cointegration approach by enabling the simultaneous estimation of
dynamic relationship between economic variables.
short-run and long-run elasticities. This feature makes it an ideal tool for
The ARDL model is applied to estimate the baseline relationships
exploring this phenomenon as it can comprehensively examine both the
between Carbon Footprint of Bank loans, Implicit Fossil Fuel Subsidies,
short-term and long-term effects of policy changes.
and ecological footprint. The model also examines the combined effect
This study adopts this technique to investigate the relationship be­
of Carbon Footprint of Bank loans, Implicit Fossil Fuel Subsidies, and
tween the dependent variable, ecological footprint (ECFP), and two in­
control variables on ecological footprint. The objective is to determine
dependent variables, Carbon Footprint of Bank loans (CFBL), and total
whether control variables, such as Environmental tax and technological
Fossil Fuel Subsidies (TFFS). To account for the influence of other factors
innovation, can help mitigate the impact of Carbon Footprint of Bank
that may impact the relationship between these variables, three control
loans and Implicit Fossil Fuel Subsidies on ecological footprint.
variables are introduced: environmental tax, exports of low carbon
The model incorporates interaction terms between the main
technology products (TINOV), and foreign direct investment (FDI).
explanatory variables (Carbon Footprint of Bank loans and Implicit

5
M.I. Iyke-Ofoedu et al. Journal of Cleaner Production 426 (2023) 139026

These control variables aid in isolating the effect of Carbon Footprint of
Bank loans and Implicit Fossil Fuel Subsidies on ecological footprint and
determining whether other factors drive this relationship.
The study utilizes time-series data for the relevant variables and
estimates two models. The first model is a basic ARDL model, and the
second model includes interaction terms. These models allow for a
comprehensive analysis of the relationship between the independent
and dependent variables, with the interaction terms enabling the ex­
amination of the moderating effects of the control variables on this
relationship.
The ARDL model used in this analysis has the following baseline
form:
φt = α + b1 τt− 1 + b2 τt− 2 + … + bp τt− p + γωt + δθt + εt
Where φt represents the dependent variable, τt is the independent var­
globalization, and the error term is denoted by ε. In order to ensure the
stability of the time series and align them with the other variables, a
logarithmic transformation for both carbon tax and energy transition
was adopted. The short-run coefficients of the lagged dependent and
explanatory variables are denoted as λ and δj, respectively. The differ­
encing operator is represented by Δ. The long-run parameters are rep­
resented by β1–β5, and the constant term is represented by β0. The speed
of adjustment towards long-run equilibrium is represented by φ.
To examine the possible interactions between independent variables
and control variables, the ARDL model with interaction terms is
employed in the analysis. This model allows us to assess the influence of
interactions on the relationship between independent and dependent
variables. The specifications of this model are as follows:
1
p− 1
∑ q− 1
∑ q− 1
∑
ΔECFPt = λj ΔECFPt− j + δj ΔCFBLt− j + δj ΔENVTXt− j

iable, ωt and θt are the control variables, and α represents the intercept. j=1 j=0 j=0

The error term is represented by εt . The coefficients b1 , b2 , …, bp capture

q− 1
∑ q− 1
∑ q− 1
∑
+ δj ΔTINOVt− j + δj ΔFDIt− j + δj ΔCFBL ∗ ENVTt−
the short-term impact on the dependent variable, while the coefficients γ
j

3
j=0 j=0 j=0
and δ capture the influence of the control variables on the dependent q− 1
∑
variable. + ′
δj ΔTFFS ∗ ENVTXt− j + φi [ECFPt− i − {β0 +β1 CFBLt− 1
The ARDL model has been modified to incorporate the chosen in­ j=0

dicators, resulting in the presentation of dynamic models as follows + β2 TFFSt− 1 + β3 CFBL ∗ ENVTt− 1 + β4 TFFS ∗ ENVTXt− 1
baseline forms: + β5 ENVTXt− 1 + β6 TINOVt− 1 + β7 FDIt− 1 }] + εit
p− 1
∑ q− 1
∑ q− 1
∑
ΔECFPt = λj ΔECFPt− j + δj ΔCFBLt− j + δj ΔTFFSt− j
In Equ. (3), the interaction between CFBL and TFFS is denoted by the
j=1 j=0 j=0 coefficient β3, while the coefficient β4 represents the interaction be­
q− 1
∑ q− 1
∑ q− 1
∑ tween ENVTX and the other variables. When analysing the relationship
+ δj ΔENVTXt− j + δj ΔTINOVt− j + δj ΔFDIt− j 2 between independent variables and a dependent variable, including
j=0 j=0 j=0
interaction terms in the model is a crucial step towards a more in-depth
+ φ′i [ECFPt− i − {β0 +β1 CFBLt− 1 + β2 TFFSt− 1 + β3 ENVTt− 1 analysis. In the context of studying the impact of carbon footprint of
+ β4 TINOVt− 1 + β5 FDIt− 1 }] + εit bank loans, total fossil fuel subsidies, and environmental tax on
ecological footprint, interaction terms allow for a more nuanced ex­
where the time period is denoted by ’t’, and ECFP represents the amination of their combined influence. The purpose of including inter­
ecological footprint. CFBL refers to the carbon footprint of bank loans, action terms is to determine the extent to which environmental tax
TFFS represents total fossil fuel subsidies, ENVTX denotes environ­ mitigates the adverse effects of carbon footprint of bank loans and total
mental tax, TINOV is the proxy for technological innovation, repre­ fossil fuel subsidies on the ecological footprint. By examining the con­
sented as exports of low carbon technology products as a percentage of tingency effect, one can gain an understanding of how the impact of the
GDP. FDI represents foreign direct investment and proxy for

Fig. 2. Environmental and economic trends in Tunisia (1995–2021).

Source: IMF climate change database and the Mendeley dataset (various years)

6
M.I. Iyke-Ofoedu et al. Journal of Cleaner Production 426 (2023) 139026

explanatory variables on ecological footprint may be influenced by the analysis of economic patterns. The asymmetric long-run regression is
level of environmental tax and its effective usage in advancing envi­ expressed as:
ronmentally sustainable goals.
y t = β + x t + β − x t + μt , (4)
Without the inclusion of interaction terms, the model assumes that
the effects of each independent variable on the dependent variable are
Δxt = vt , (5)
independent and do not interact with each other. However, this is not
the case in reality. The impact of carbon footprint of bank loans, total Where yt and xt are scalar I(1) series, and xt is decomposed as xt = x0 +
fossil fuel subsidies, and environmental tax on ecological footprint may x+
t + xt , where xt and xt denote partial sum processes associated with
− + −
be influenced by the level of environmental tax, and the interactions
positive and negative variations in xt :
between these variables need to be considered. By incorporating inter­
action terms in the model, potential synergistic or diminishing effects ∑
t ∑
t
( ) ∑
t ∑
t
( )
x+
t = Δx+
j = max Δxj , 0 , x−t = Δx−j = min Δxj , 0 . (6)
between the independent variables and the dependent variable can be j=1 j=1 j=1 j− 1
captured. This provides a more comprehensive understanding of the
relationship between the variables and is critical for policy makers and Asymmetric cointegration is modelled above using partial sum de­
stakeholders who need to make informed decisions about how to lower compositions. A stationary linear combination of the partial sum com­
ecological footprint. For example, the coefficient of the interaction term ponents is described by Schorderet (2003) as follows:
between carbon footprint of bank loans and environmental tax (repre­
zt = β + + − − + + − −
0 yt + β0 yt + β0 xt + β0 xt . (7)
sented as β3 ) provides a measure of the additional effect of carbon
footprint of bank loans on ecological footprint, given a certain level of If zt is stationary, then xt and yt are ‘asymmetrically cointegrated’.
environmental tax. It captures the combined impact of carbon footprint The standard linear (symmetric) cointegration is a special case of (7),
of bank loans and environmental tax on ecological footprint. This in­ obtained only if β+ 0 = β0 and β1 = β1 . Shin et al. (2014) consider the
− + −

formation can be used to make more targeted and effective policies that situation in which the following restriction applies: β+0 = β0 . In expres­
−

take into account the interactions between these variables. − β+

sion (4), this implies that β+ = and β− = .
1
− β−1
β0 β0
This foundation was used to propose the nonlinear ARDL (p, q)
3.2.2. Nonlinear Autoregressive Distributed Lag (NARDL) approach
model:
The Nonlinear Autoregressive Distributed Lag model is an advanced
econometric method that is used to study the dynamic relationships p
∑ q (
∑ )
(8)
′ + − ′ −
between variables, particularly in the context of environmental policy. yt = φj yt− j + θ+
j xt− j + θj xt− j + εt ,

This model is an extension of the ARDL (Autoregressive Distributed Lag)

j=1 j=0

model, which allows for the examination of the short-run and long-run
where xt represents a k × 1 vector of multiple determinants, xt + x+t +
impacts of policy changes on environmental outcomes.
x−t , θj is the autoregressive parameter, θ+
i and θj j are the asymmetric
−
The assumption of symmetry in regression models assumes that the
relationship between the dependent variable and explanatory variables distributed lag parameters, and εt is an i.i.d.
is constant over time. However, this assumption is often unrealistic in process with zero mean and constant variance, σ2ε . xt is decomposed into
real-world scenarios. The responsiveness of the dependent variable to x+
t and xt around zero, distinguishing between positive and negative
−

changes in the explanatory variables may be affected by various factors, changes in rate of change of xt .
such as economic conditions, technological advancements, and gov­ Following the outcomes in Sharma and Kautish (2019 & Sharma and
ernment policies, among others. These factors may result in the rela­ Kautish, 2020), Equ. (8) is modified to a computable NARDL as repre­
tionship between the dependent variable and explanatory variables sented in Eq. (9) below:
changing over time, making the assumption of symmetry inaccurate.
ΔECFPt =λ1 ECFP(t− 1) + λ2(+) CFBLt− 1(+) + λ3(− ) CFBLt− 1(− ) + λ4(+) TFFSt− 1(+)
In view of this, the key advantage of the NARDL model is that it takes
+ λ5(− ) TFFSt− 1(− ) + λ6(+) ENVTXt− 1(+) + λ7(− ) ENVTXt− 1(− )
into account the possibility of asymmetric relationships between vari­
ables over time. This implies that the model recognizes that the effect of + λ8(+) TINOVt− 1(+) + λ9(− ) TINOVt− 1(− ) + λ10(+) FDIt− 1(+)

policy changes on environmental outcomes may not be symmetric across p

∑ p
∑
+ λ11(− ) FDIt− 1(− ) + ρ1 ΔECFPt− i + ρ2 ΔCFBLt−
different time periods, and that the direction of policy change can n=0 n=0
i(+)

impact the size and direction of the effect on outcomes. For example, a p
∑ p
∑ p
∑
1% increase in a policy variable may have a different impact on an + ρ3 ΔCFBLt− i(− ) + ρ
4 ΔTFFSt− i(+) + ρ
5 ΔTFFSt− i(− )
environmental outcome than a 1% decrease in the same policy variable. n=0 n=0 n=0
∑p ∑ p p
∑
This highlights the importance of considering the direction of policy + ρ6 ΔENVTXt− ρ7 ΔENVTXt− ρ8 ΔFDIt−
i(+) + i(− ) + i(+)
change when studying the effects of environmental policies on envi­ n=0 n=0 n=0
ronmental outcomes. Additionally, the NARDL model allows for the ∑p

examination of the lag effects of policy changes on environmental out­ + ρ9 ΔFDIt− i(− ) + tμ
comes. Environmental policies may not have immediate effects, and the
n=0

full impact of policy changes may take time to materialize. Therefore,
the NARDL model is well-suited to study the impact of environmental
policies over time, taking into account the dynamic relationships be­
tween variables. Studies have shown that environmental policies have
heterogeneous effects on environmental outcome, and that the direction
of policy change is an important factor in determining the size and di­
rection of the effect on emissions (Tang and Dou, 2021).
Shin et al. (2014) developed NARDL model based on an asymmetric
long-run regression dimensions. This means that the model considers the
possibility that the responsiveness of the dependent variable to changes
in the explanatory variables being studied may not be uniform or
consistent over time as opposed to a symmetric assumption. This
consideration of asymmetry leads to more accurate forecasting and
(9)
The ecological footprint, carbon footprint of bank loans, total fossil
fuel subsidies, environmental tax, technological innovation, and foreign
direct investment are represented by ECFP, CFBL, TFFS, ENVT, TINOV,
and FDI, respectively. The expected impact of CFBL, TFFS, and FDI on
the ecological footprint is anticipated to be positive. In contrast, the
expected impact of ENVTX and TINOV on the ecological footprint is
expected to be negative. The short-run and long-run coefficients are
denoted by ρi and λi , respectively. To examine the long-run
(λ= λ(+) = λ(− ) ) and short-run asymmetry (ρ = ρ(+) = ρ(− ) ), a Wald test
has been conducted. The minus (− ) and plus (+) subscripts in Equation
(8) indicate negative and positive disturbances, respectively.

7
M.I. Iyke-Ofoedu et al.
3.2.3. Model justification
Autoregressive Distributed Lag (ARDL) and Nonlinear Autore­
gressive Distributed Lag (NARDL) models are both powerful tools in
time-series analysis, particularly for examining the relationships be­
tween economic variables. Each model offers distinct advantages that
suit different research contexts. These models are relatively robust to
endogeneity issues, making them suitable for situations where variables
may be mutually determined. Additionally, ARDL models perform well
with relatively small sample sizes, making them applicable to studies
with limited data availability.
On the other hand, NARDL models excel at capturing asymmetric
effects and nonlinear relationships between variables, which is crucial
when studying real-world phenomena that exhibit different responses to
positive and negative shocks. They offer greater flexibility in modelling
complex interactions among variables, providing a more accurate rep­
resentation of real-world systems where linearity assumptions may not
hold. In certain cases, NARDL models can outperform linear models in
forecasting accuracy, considering asymmetric effects and nonlinearity to
yield more precise predictions. Furthermore, NARDL models effectively
address endogeneity concerns by incorporating lagged variables,
enabling researchers to account for dynamic relationships and reducing
the potential for endogeneity bias.
4. Results and discussions
4.1. Descriptive statistics and multicollinearity test
The descriptive statistics results in Table 2 provide important in­
sights into the distribution and central tendency of the variables as well
as test for multicollinearity.
Table 2 provides descriptive statistics for the model variables, of­
fering insights into their central tendency and distribution. The results
indicate that the ecological footprint per capita (ECFP) has a mean of
2.147 with a relatively tightly clustered standard deviation of 0.045. The
negative skewness value of − 0.932 indicates left skewness, with higher-
end values being more frequent. The kurtosis value of 3.172 indicates a
leptokurtic distribution. The carbon footprint of bank loans (CFBL) has
an average of 94.55% with the widest range of values and slightly
positive skewness. The kurtosis value of 2.517 indicates a distribution
closer to normal than the ECFP distribution. The means of total fossil
fuel subsidies (TFFS) and environmental tax (ENVTX) are 10.18% and
8.58%, respectively. TFFS and ENVTX have relatively tight clustering
around their means and closer proximity to a normal distribution. The
export of low-carbon technology (TINOV) and foreign direct investment
(FDI) have averages of 8.28% and 2.30%, respectively. To test for
normality, the Jarque-Bera (JB) test is performed, with p-values greater
than 0.05 for most variables except for FDI, indicating that the null
hypothesis of normal distribution cannot be rejected.
In Table 3, the results of the covariance analysis and multi­
collinearity test are presented. Multicollinearity is observed when two or
more predictor variables exhibit a high correlation, indicated by a cor­
relation coefficient greater than 0.8 or less than − 0.8. This can create
problems in regression analysis by making it difficult to determine the
distinct effect of each variable on the outcome. It can lead to unstable
predictor variable coefficients, difficulty in interpretation, over­
estimated standard errors, and incorrect estimation of the variance-
covariance matrix, which can result in unreliable test statistics and
incorrect conclusions. Therefore, it is crucial to check for multi­
collinearity before conducting regression analysis to ensure the validity
and reliability of the results. The results from Table 3 show that while
some correlation exists among the variables, none of the correlation
coefficients exceed the threshold of 0.8 or − 0.8, indicating that there are
no significant concerns about multicollinearity.
8
Journal of Cleaner Production 426 (2023) 139026
4.2. Unit root test
The Augmented Dickey-Fuller (ADF) unit root test is presented in
Table 4. A unit root test is a statistical test used to determine if a time
series is stationary or non-stationary. A stationary time series has a
constant mean and variance over time, while a non-stationary time se­
ries has a mean and variance that change over time. The null hypothesis
of the ADF test is that the time series has a unit root (i.e. is non-
stationary) and the alternative hypothesis is that the time series is
stationary.
The results presented in Table 4 revealed the variables attained
stationarity at different orders of integration. These findings suggest that
the first differences of ECFP, TFFS, and TINOV are stationary at first
difference, while CFBL, ENVTX, and FDI are stationary at level. There­
fore, the series has a mixed order of integration, and none of the vari­
ables is I(2), making them suitable for estimating ARDL models.
Furthermore, any trend or seasonality has been removed, which makes
the data appropriate for regression analysis.
4.3. Presentation and discussion of regression results
4.3.1. ARDL analysis with interaction terms
Incorporating the interaction terms between carbon footprint of
bank loans (CFBL) and environmental tax (ENVTX), and between fossil
fuel subsidies (TFFS) and ENVTX, as shown in Table 5, provides a more
nuanced understanding of the relationship between these variables and
ecological footprint (ECFP). The result indicates that one-period lag in
ecological footprint is significantly related to a decline in the current
ecological footprint. The finding is an important insight into under­
standing the dynamics of ecological footprint. This result suggests that
past ecological footprints can influence the current state of the envi­
ronment. In other words, previous efforts to reduce ecological footprint
can have a positive impact on the current state of the environment. The
positive and significant association between CFBL and ecological foot­
print suggests that carbon footprint of bank loans has a detrimental ef­
fect on the environment. Specifically, the result indicates that a 1%
increase in CFBL is associated with a 0.15% increase in ecological
footprint. This finding highlights the importance of reducing carbon
emissions from bank loans as part of efforts to mitigate environmental
damage and promote sustainability.
Similarly, the positive and significant association between TFFS and
ecological footprint indicates that fossil fuel subsidies have a negative
impact on the environment. The result suggests that a 1% increase in
TFFS is associated with a larger increase in ecological footprint, spe­
cifically, a 0.80% increase. This finding underscores the importance of
reducing fossil fuel subsidies to promote sustainability and mitigate
environmental damage.
The results indicate that there is a significant interaction effect be­
tween the carbon footprint of bank loans and environmental tax, sug­
gesting that the impact of the carbon footprint of bank loans on the
ecological footprint is contingent on the level of environmental tax. The
negative coefficient for the interaction term between CFBL and ENVTX
implies that as environmental tax increases, the adverse effect of the
carbon footprint of bank loans on the ecological footprint decreases.
This finding supports the theoretical framework of environmental
taxation, which posits that environmental policies, such as taxes and
regulations, can incentivize firms to adopt cleaner technologies and
reduce their environmental impact. Moreover, the results show that
when environmental tax increases by 1%, the adverse effect of the car­
bon footprint of bank loans on the ecological footprint declines by
approximately 0.02%. This finding provides policymakers with valuable
insights into the potential impact of environmental taxation on carbon
emissions and environmental sustainability. By increasing environ­
mental taxes, governments can encourage firms to internalize the
negative externalities associated with pollution and adopt more sus­
tainable practices, which can lead to a reduction in carbon emissions and
M.I. Iyke-Ofoedu et al. Journal of Cleaner Production 426 (2023) 139026

Table 2
Descriptive statistics and test for multicollinearity.
Variable Mean Max. Min. S.D Skewness Kurtosis JB P-value Obs.

ECFP 2.147 2.199 2.040 0.045 − 0.932 3.172 3.940 0.139 27

CFBL 94.550 119.846 77.962 12.265 0.597 2.517 1.866 0.393 27
TFFS 10.183 13.216 7.897 1.757 0.202 1.740 1.971 0.373 27
ENVTX 8.577 8.881 8.410 0.186 0.610 1.651 3.720 0.156 27
TINOV 8.277 8.746 7.666 0.400 − 0.301 1.370 3.398 0.183 27
FDI 2.595 9.425 0.899 1.727 2.562 10.366 90.575 0.000 27

Table 3 Table 5
Multicollinearity test results. ARDL estimation results with interaction terms.
CFBL TFFS ENVTX FDI TINOV Long-run Estimate

CFBL 1 Variable Coefficient Std. t- Prob.

TFFS 0.213 1.000 Error Statistic
ENVTX 0.045 0.278 1.000
ECFP( − 1) − 0.511 0.195 − 2.625 0.028
FDI − 0.151 − 0.196 − 0.037 1.000
CFBL( − 1) 0.146 0.044 3.299 0.009
TINOV 0.124 − 0.419 − 0.210 − 0.036 1.000
TFFS( − 1) 0.797 0.344 − 2.315 0.044
CFBL ∗ ENVTX( − 1) − 0.017 0.005 − 3.301 0.009
TFFS ∗ ENVTX( − 1) 0.092 0.040 2.332 0.025
ENVTX( − 1) 0.788 0.270 2.915 0.017
Table 4
TINOV − 0.037 0.018 2.097 0.066
ADF Unit root test Results.
FDI( − 1) 0.012 0.004 2.901 0.018
Variable Test Test critical value @ p- Order of Intercept − 6.110 2.223 − 2.749 0.023
statistic 5% value Integration
Short-run Estimate
ECFP − 6.342 − 2.992 0.000 I(1)
D(CFBL) 0.052 0.036 1.448 0.181
CFBL − 4.340 –2.998 0.003 I(0)
D(TFFS) − 0.200 0.396 − 0.506 0.625
TFFS − 3.359 − 2.986 0.023 I(1)
D(CFBL ∗ ENVTX) − 0.006 0.004 − 1.493 0.170
ENVTX − 3.215 − 2.981 0.030 I(0)
D(TFFS ∗ ENVTX) 0.023 0.046 0.503 0.627
TINOV − 4.263 − 2.986 0.003 I(1)
D(ENVTX) 0.390 0.212 1.838 0.099
FDI − 3.889 − 2.981 0.007 I(0)
D(TINOV) 0.008 0.002 3.447 0.007
D(FDI) 0.132 0.091 1.453 0.180

an improvement in their ecological footprint. In addition, this finding Diagnostics Tests

highlights the importance of incorporating the contingency effects of LM Test prob.(F-statistic) 0.453
environmental policies when formulating environmental regulations ARCH test prob.(F-statistic) 0.714
and policies. It suggests that policymakers should consider the potential Ramsey RESET Test prob.(F- 0.371
statistic)
synergistic or antagonistic effects of different policies and their in­
Normality Test (p-value) 0.426
teractions to ensure that environmental policies are effective and sus­
tainable in the long term. Bound Test
Test Statistic Value Signif. I(0) I(1)
In contrast, the interaction term between fossil fuel subsidies and
environmental tax (TFFS*ENVTX) displays a positive and significant F-statistic 7.618 10% 1.85 2.85
k 8 5% 2.11 3.15
association with ecological footprint. The positive coefficient for the
interaction term suggests that as environmental tax increases, the
adverse impact of fossil fuel subsidies on ecological footprint also in­ more efficient resource use and reduced environmental impacts, they
creases. Specifically, the result indicates that for every 1% increase in may not be enough to counteract the negative effects of CFBL and TFFS
environmental tax, the adverse effect of fossil fuel subsidies on ecolog­ on ecological footprint. In other words, without addressing the impact of
ical footprint increases by 0.09%. This finding holds considerable sig­ carbon footprint of bank loans and total fossil fuel subsidies, techno­
nificance, particularly given the positive and significant relationship logical innovation alone may not be enough to reduce ecological foot­
between TFFS and ECFP in the absence of the interaction term. It print. This finding aligns with Salman et al. (2019) study, which
highlights that while increasing fossil fuel subsidies may lead to a rise in investigated the factors influencing emissions in seven Southeast Asian
ecological footprint, the effectiveness of policies aimed at mitigating countries between 1990 and 2017. Their results indicated that tech­
their adverse effects can be enhanced through the implementation of nology adoption led to a reduction in CO2 emissions, resulting in a lower
environmental taxes. Coady et al. (2019) found that environmental taxes ecological footprint. Furthermore, a positive and significant relationship
play a crucial role in promoting environmental quality, and they argued between foreign direct investment and ECFP was found in Tunisia. This
that efficient pricing of fossil fuels could have decreased global carbon contradicts the finding in Zafar et al. (2019) which contend that FDI is
emissions by 28 percent in 2015. This conclusion is consistent with the negatively related to ecological footprint in the case of the United States.
findings of the present study. Hence, the findings emphasize the This finding suggests that globalization is a significant driver of envi­
importance of a well-designed policy framework that considers the ronmental degradation in the country. The influx of foreign investment
interplay between different policy instruments in addressing environ­ and the associated increase in economic activity may contribute to
mental challenges. According to Lu et al. (2022), promoting environ­ higher levels of environmental pollution and degradation. This finding
mental sustainability hinges on the importance of sustainable sludge highlights the need for policy measures that promote sustainable eco­
management, which holds significant potential for energy and resource nomic growth and minimize the negative environmental impact of
recovery, potentially leading to carbon neutrality and energy positivity. foreign investment in Tunisia.
The results of the analysis indicate a negative but insignificant
relationship between technological innovation and ECFP. This finding 4.3.2. NARDL analysis
suggests that although innovation and technological progress can lead to Table 6 shows the results of the NARDL model. The significance tests

9
M.I. Iyke-Ofoedu et al. Journal of Cleaner Production 426 (2023) 139026

for autocorrelation and heteroscedasticity (p-values = 0.284 and 0.439, Table 6

respectively) show that the model is free of these types of errors. Asymmetric estimation results.
Furthermore, the normality test indicates that the data is normally Long-run estimate
distributed (p-value = 0.607). The insignificant value of the Ramsay test
Variable Coefficient Std. t- Prob.
(p-value = 0.541) confirms the adequacy of the functional form and Error Statistic
allows for the estimation of the variables in the long run. The significant
ECFP( − 1) − 2.034 0.092 − 22.151 0.029
values of the asymmetric coefficients, as determined by the Wald test, 0.010 0.001 13.350 0.042
CFBL+
indicate that asymmetric analysis is crucial for understanding the rela­ CFBL− − 0.002 0.001 − 4.076 0.003
tionship between the variables and ecological footprint in the country. TFFS+ − 0.140 0.009 − 15.232 0.042
Specifically, the shocks in CFBL, TFFS, ENVT, TIVOV, and FDI had TFFS− 0.299 0.014 21.158 0.030
different and significant effects on ecological footprint during the ENVTX+ − 0.541 0.025 − 21.411 0.033
ENVTX− − 1.327 0.074 − 17.996 0.035
period. In other words, the relationship between these variables and
TINOV+ − 0.173 0.036 − 4.853 0.129
ecological footprint is not symmetric. TINOV− − 3.954 0.187 − 21.092 0.030
The NARDL results presented in Table 5 suggest that there is an FDI+ 0.151 0.009 17.337 0.037
asymmetric relationship between carbon footprint of bank loans and FDI− 0.100 0.007 13.807 0.046
ecological footprint, and between fossil fuel subsidies and ecological Intercept 4.665 0.213 21.867 0.029

footprints. The discussion of these results suggests that positive and Asymmetry Statistics Long-run
negative shocks to CFBL have different impacts on ecological footprint. Asymmetry
Specifically, the results indicate that an increase in CFBL is associated WaldLR(CFBL) 4.553 0.027
with a significant increase in ecological footprint, while a decrease in WaldLR(TFFS) 16.002 0.000
CFBL is associated with a relatively smaller increase in ecological foot­ WaldLR(ENVTX) 6.745 0.004
print. The results show that a 1% increase in CFBL is associated with a WaldLR(TINOV) 3.681 0.032
WaldLR(FDI) 4.339 0.007
0.01% increase in ecological footprint. On the other hand, a 1% decrease
in CFBL is associated with a 0.002% increase in ecological footprint. This Short-run estimate
suggests that the effect of an increase in CFBL on ecological footprint is ΔCFBL+ 0.013 0.001 20.582 0.031
around five times greater than the effect of a decrease in CFBL. This ΔCFBL− 0.005 0.001 5.491 0.115
finding is significant as it implies that policies aimed at reducing the ΔTFFS+ 0.012 0.009 1.402 0.394
carbon footprint of bank loans can have a greater impact on reducing ΔTFFS− − 0.043 0.005 − 8.237 0.077
ΔENVTX+ 0.201 0.013 15.108 0.042
ecological footprint than policies aimed at increasing the carbon foot­
ΔENVTX− − 0.998 0.049 − 20.386 0.031
print of bank loans. This result is consistent with the notion that ΔTINOV+ 0.871 0.066 13.166 0.048
reducing carbon emissions can lead to a more sustainable and envi­ ΔTINOV− − 2.273 0.120 − 19.010 0.034
ronmentally friendly economy. Furthermore, the asymmetric relation­ ΔFDI+ 0.014 0.001 14.983 0.042
ship between CFBL and ecological footprint may be due to the fact that ΔFDI− 0.139 0.008 17.005 0.037

reducing carbon emissions can be more difficult than increasing carbon Asymmetry Statistics Short-run
emissions. For instance, reducing carbon emissions may require the asymmetry
adoption of cleaner technologies, which can be costly and may require WaldSR(CFBL) 5.171 0.003
significant investment. On the other hand, increasing carbon emissions WaldSR(TFFS) 9.334 0.001
may be relatively easier as it may involve the use of existing technologies WaldSR(ENVTX) 3.646 0.042
and infrastructure. WaldSR(TINOV) 4.962 0.038
WaldSR(FDI) 3.228 0.024
Similarly, the findings regarding the impact of fossil fuel subsidies on
ecological footprint are particularly interesting. The findings indicate Diagnostic tests
that the effects of changes in fossil fuel subsidies on ecological footprint LM Test prob.(F-statistic) 0.284
are dependent on the direction of change. The results show that positive ARCH test prob.(F-statistic) 0.439
and negative changes in fossil fuel subsidies have the same direction of Ramsey RESET Test prob.(F- 0.541
statistic)
effects on ecological footprint, but the magnitude of their impact is
Normality Test(p-value) 0.607
significantly different. The coefficient of the positive change in fossil fuel
subsidies (TFFS+) is − 0.14, suggesting that a 1% increase in TFFS is Bound test
Test Statistic Value Signif. I(0) I(1)
associated with a 0.14% decrease in ecological footprint. This result
suggests that an increase in fossil fuel subsidies has a small, but still F-statistic 443.337 10% 1.76 2.77
k 11 5% 1.98 3.04
negative, impact on ecological footprint. In contrast, the coefficient on
the negative change in TFFS (TFFS-) is approximately 0.30, implying
that a 1% decrease in TFFS is associated with a 0.30% decrease in fuel consumption. Instead, decreasing subsidies may lead to significant
ecological footprint. The result indicates that decreasing fossil fuel improvements in ecological footprint, thereby promoting sustainable
subsidies has twice the beneficial effect on ecological footprint development.
compared to increasing fossil fuel subsidies. The findings suggest that Further, the results of the study provide insightful information on the
reducing fossil fuel subsidies can be an effective strategy for mitigating relationship between environmental tax, globalization, technological
the adverse effects of fossil fuel consumption on ecological footprint. Li innovation, and ecological footprint. One interesting finding is the
and Sun (2018) support the present finding and assert that removing presence of an asymmetric relationship between environmental tax and
fossil fuel subsidies alone is insufficient for CO2 mitigation during pe­ ecological footprint, as well as between globalization and ecological
riods when these subsidies are positive. By reducing subsidies, govern­ footprint.
ments can discourage the use of fossil fuels and encourage the adoption According to the results, there is evidence to support that a positive
of cleaner energy sources, thereby promoting sustainable development. exogenous shock on environmental taxation results in a decrease of
Furthermore, the study’s results imply that policymakers should focus 0.54% in ecological footprint. This discovery aligns with the theoretical
on reducing fossil fuel subsidies rather than increasing them. Increasing framework of environmental taxation, which proposes that such policies
subsidies may have a limited effect on ecological footprint, and the can account for externalities caused by pollution and motivate firms to
benefits may be outweighed by the negative impacts of increased fossil

10
M.I. Iyke-Ofoedu et al.
adopt greener technology. On the other hand, negative exogenous shock
on environmental taxation are associated with a 1.33% increase in
ecological footprint. This suggests that a reduction in environmental tax
can offset the advantageous effects of an increase by more than two
times. This finding accentuates the potential risks associated with
reducing environmental taxes and emphasizes the significance of
maintaining a consistent and stable environmental policy to achieve
sustainable development goals.
Similarly, the results suggest that 1% increase in globalization cor­
responds with a 0.15% increase in ecological footprint, while 1%
decrease in globalization is related to a 0.10% decline in ecological
footprint. This finding suggests that globalization has both positive and
negative impacts on ecological footprint. On the one hand, globalization
can lead to increased trade and economic growth, which can increase
carbon emissions and ecological footprint. On the other hand, global­
ization can also facilitate the transfer of cleaner technologies and
practices, which can reduce environmental impact.
By contrast, there exists limited empirical support for an asymmetric
linkage between technological innovation and ecological footprint over
a long-term. Nevertheless, the findings validate the existence of an
asymmetric relationship in the short term. This could imply that tech­
nological advancements may not necessarily lead to a reduction in
ecological footprint in the long run, although it may have a positive
impact in the short term. Therefore, it is important to take a holistic
approach to understand the relationship between technological inno­
vation and ecological footprint, considering both short-term and long-
term implications. It is possible that the positive effects of technolog­
ical innovation on ecological footprint in the short term may be offset by
the negative effects that may arise in the long term due to the increased
usage of technology. For instance, advancements in transportation
technology may initially reduce emissions, but the increased usage of
personal vehicles and air travel may eventually lead to a higher
ecological footprint. Therefore, it is crucial to carefully assess the impact
of technological innovation on the environment and take necessary
measures to minimize negative effects in the long run. This may include
implementing regulations and policies to encourage the development of
sustainable technologies and promoting practices that reduce environ­
mental harm.
4.3.3. Dynamic adjustments procedure
Fig. 3a–c displays the results of the asymmetric dynamic adjustment
process in ecological footprint caused by carbon footprint of bank loans,
fossil fuel subsidies, and environmental tax in Tunisia. The figure shows
that the upper bound and lower bound shocks are statistically significant
in the long run, as indicated by the red-dotted line being significantly
different from both types of shocks in all three subplots. This indicates
that the impact of variations on both sides is significantly different on
ecological footprint, underscoring the need for a NARDL examination.
Notably, the maximum asymmetric variations in ecological footprint are
caused by fossil fuel subsidies in Tunisia. These findings demonstrate the
importance of considering both upper and lower bound shocks in
modeling the relationship between the variables and highlight the sig­
nificant impact of fossil fuel subsidies on ecological footprint in Tunisia.
5. Conclusion
In conclusion, this study employed a linear and nonlinear ARDL
framework to assess the influence of the carbon footprint of bank loans
(CFBL) and fossil fuel subsidies (TFFS) on Tunisia’s ecological footprint.
The results demonstrate that TFFS exhibits a notably greater adverse
impact on ecological footprint compared to CFBL, indicating a sub­
stantial environmental cost associated with fossil fuel subsidies.
Furthermore, the study reveals an asymmetric relationship between
CFBL, TFFS, and ecological footprints, with CFBL showing a significant
positive association and TFFS exerting a more pronounced effect.
Environmental taxation emerges as a crucial factor, as positive shocks
11
Journal of Cleaner Production 426 (2023) 139026
lead to a notable decrease in ecological footprints, while negative shocks
result in a substantial increase. Additionally, the interaction effect
highlights the importance of an appropriate level of environmental tax
in mitigating the impact of CFBL and TFFS on ecological footprints.
These findings underscore the urgency of reducing carbon emissions,
curbing fossil fuel subsidies, and implementing effective environmental
taxation policies to advance sustainability and alleviate environmental
harm.
6. Practical policy implications
The results of the study offer significant practical implications for
policymakers in Tunisia and other countries confronting similar chal­
lenges. Firstly, the positive and significant association between carbon
footprint of bank loans and ecological footprint suggests that policies
aimed at reducing carbon emissions from banks and other financial in­
stitutions can help mitigate the negative impact on the environment. It is
recommended that regulatory authorities in Tunisia consider the
implementation of measures such as carbon pricing, green bonds, and
incentives for investments in clean energy technologies. These initia­
tives aim to encourage banks to actively reduce their carbon footprint
and promote environmentally sustainable practices within the financial
sector. Secondly, our findings also reveal that fossil fuel subsidies have a
negative impact on the environment, which highlights the importance of
reducing and subsequently removing these subsidies to promote sus­
tainability. The recommendation suggests that the Tunisian government
should adopt a gradual approach to phasing out fossil fuel subsidies.
Simultaneously, they are advised to implement measures aimed at
promoting low-carbon alternatives, particularly renewable energy
sources.
This will not only contribute to mitigating environmental damage
but also promote a more sustainable and resilient economy in the long
run. Thirdly, the results suggest that the impact of the carbon footprint
of bank loans and fossil fuel subsidies on ecological footprint is contin­
gent on the level of environmental tax. Specifically, it was found that the
adverse effect of the carbon footprint of bank loans on ecological foot­
print decreases as the environmental tax increases, while the adverse
effect of fossil fuel subsidies on ecological footprint increases with an
increasing environmental tax. These findings indicate that environ­
mental taxation can play a crucial role in promoting sustainability and
mitigating environmental damage. The recommendation for the Tuni­
sian government is to implement a carbon tax and progressively raise the
level of environmental tax, aiming to encourage companies to adopt
cleaner technologies and lower their carbon emissions. Additionally, it is
suggested to embrace green banking initiatives, like a retail electronic
payment system, which has been demonstrated by Ramila and Gurus­
amy (2015) to significantly contribute to reducing the carbon footprint.
The NARDL results provide some practical implications and recom­
mendations for policymakers and stakeholders in Tunisia. The results
indicate that an increase in CFBL is associated with a significant increase
in ecological footprint, while a decrease in CFBL is associated with a
relatively smaller increase in ecological footprint. Therefore, policy­
makers should consider implementing policies that discourage the
financing of carbon-intensive activities, such as the promotion of low-
carbon investments and the implementation of regulations to reduce
the carbon intensity of bank loans. For instance, the government can
offer incentives, such as tax credits or subsidies, to banks that provide
loans for low-carbon investments, while increasing the environmental
tax on carbon-intensive activities to discourage carbon-intensive in­
vestments. Furthermore, the findings suggest that changes in fossil fuel
subsidies have different effects on ecological footprint depending on the
direction of change. The results show that decreasing fossil fuel subsidies
has twice the beneficial effect on ecological footprint compared to
increasing fossil fuel subsidies. Therefore, policymakers in Tunisia
should consider reducing fossil fuel subsidies and redirecting those
funds towards investments in renewable energy and other sustainable
M.I. Iyke-Ofoedu et al.
Fig. 3. Asymmetric adjustment using dynamic procedure.
development projects. The reduction of fossil fuel subsidies can also help
reduce the budget deficit and free up resources for social welfare
programs.
Further, civil society, non-governmental organizations (NGOs), and
foreign organizations have essential roles in assisting Tunisia with the
ecological impact of bank loans and fossil fuel subsidies. They can raise
awareness, monitor and hold stakeholders accountable, conduct
research, and offer capacity building. Collaboration, policy advocacy,
and financial support for green initiatives can collectively drive Tunisia
towards a more sustainable future.
Despite providing valuable insights, the study has certain acknowl­
edged limitations. Firstly, the analysis focused solely on examining the
influence of carbon footprint of bank loans and fossil fuel subsidies on
ecological footprint in Tunisia, which may restrict the generalizability of
the findings to other countries. Secondly, due to constraints related to
data availability, the study relied on a relatively short time period,
potentially overlooking the long-term effects of policy interventions.
Lastly, the research solely utilized secondary data, which may be sus­
ceptible to measurement errors and omitted variable bias. Nevertheless,
the study establishes a strong basis for future research in this field and
presents practical recommendations for policymakers and stakeholders
to address and mitigate the adverse effects of carbon-intensive activities
on the environment. One important area for future research is to explore
the impact of other factors such as technological advancements, trade
policies, and consumer behaviour on the ecological footprint. In addi­
tion to environmental tax, further research could investigate the effec­
tiveness of policies aimed at promoting sustainable development, such
as green bonds and carbon pricing, and promoting environmental sus­
tainability. Finally, as more data becomes available, future research
could expand the analysis to include other countries and regions to
provide more insight into the relationship between carbon footprint of
bank loans, fossil fuel subsidies, and ecological footprint at the global
level.
12
Journal of Cleaner Production 426 (2023) 139026
CRediT authorship contribution statement
Maureen Ifeoma Iyke-Ofoedu: Data curation, Investigation,
Methodology, Project administration, Supervision, Validation, Writing –
review & editing. Nnenna G. Nwonye: Data curation, Investigation,
Methodology, Supervision, Validation, Visualization, Writing – review
& editing. Ishaku Prince Abner: Formal analysis, Investigation,
Methodology, Project administration, Resources, Validation, Visualiza­
tion, Writing – review & editing. Hillary Chijindu Ezeaku: Conceptu­
alization, Formal analysis, Investigation, Resources, Supervision,
Validation, Writing – original draft, Writing – review & editing. Obinna
Ubani: Data curation, Formal analysis, Investigation, Methodology,
Resources, Validation, Visualization, Writing – review & editing.
Declaration of competing interest
The authors affirm that they have no conflicts of interest concerning
the research presented in this manuscript. They have not received any
financial support or compensation, whether directly or indirectly, from
any organization or individual with a vested interest in the outcome of
this research. Furthermore, they assert that there are no personal re­
lationships that could potentially bias their work. All sources of infor­
mation utilized in this research have been duly cited.
Data availability
Data will be made available on request.
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