Urbanization, Energy Dynamics, and Circular Practices: A Pathway to Climate-Neutral Cities Through Nature-Based Solutions

Households’ energy use for cooling and heating purposes expands due to population pressure in cities. Consistent urbanization increases energy demand, leading to environmental degradation. However, this study aims to investigate the impact of urbanization on energy demand in the most populous countries (e.g., China, India, and the USA) from 1995 to 2023. For empirical analysis two-step Driscoll-Kraay Error Correction Model (ECM) is considered, and the Cross-Sectional Mean Group (CCMG) Panel Quantile Regression for robustness. Regarding demand for cooling energy, it is confirmed that urbanization initially reduces it and later is responsible for its expansion. Oppositely, urbanization is responsible for the initial reduction and later expansion of demand for heating energy. It is assumed that circular practices as sources of nature-based solutions can bring sustainability to households' energy consumption patterns. Empirical findings have confirmed that the Interaction effects between circular practices and urbanization enhance sustainable energy management by improving resource efficiency and reducing environmental impacts through heating energy demand. Financial development is found to escalate heating energy demand and improve the efficiency of cooling energy consumption. Effective governance, particularly through Nature-Based Solutions (NBS), reduces heating energy demand. In this way, this research supports Sustainable Development Goals 7, 11, and 13.