Environmental degradation, driven by industrialization and population growth, has emerged as a critical global challenge, disproportionately impacting the most vulnerable communities. A significant factor contributing to this issue is the rapid rise in greenhouse gas emissions, particularly Carbon Dioxide (CO2), which accelerates climate change and its widespread effects. Simultaneously, Fossil Fuel Subsidies (FFS), initially introduced to enhance energy access and stimulate economic growth, have faced growing criticism for distorting markets, slowing the transition to renewable energy, and deepening environmental and social inequalities. Hence, addressing these challenges requires urgent action to reform FFS and reduce CO2 emissions, which are pivotal to achieving the United Nations Sustainable Development Goals (SDGs), especially affordable and clean energy (SDG 7) and climate action (SDG13). The present study conducts a multiple regression model by using the Estimated Generalized Least Squares (EGLS) method across 37 countries from 2010 to 2022. It aims to analyze the impact of environmental degradation captured by FFS and CO2 emissions on sustainable development (SD). In addition, it studies the moderating role of CO2 emissions in affecting the relationship between FFS and SD. The results show that the FFS has a positive and significant impact on SD, while CO2 emissions has a negative and significant impact on SD. In the meantime, the interaction term of the FFS and CO2 emissions has a negative and significant impact on SD. This indicates that CO2 emissions is moderating the relationship between FFS and SD by altering its impact on SD.