Energy consumption, economic growth, and environmental degradation have interconnected impacts that have risen to the forefront of public policy discussions in highly mountainous economies (HME). This study exploits a panel vector autoregression (PVAR) and system-GMM approach to research the bond across economic growth, energy consumption, and carbon emissions of HME countries from 1971 to 2020. A multivariate model was used to establish key relationships with policy implications. The findings of this study indicate that countries’ environmental performance levels are enhanced by economic growth and energy consumption patterns. The long-run estimators’ findings suggest that carbon emissions are caused by energy consumption and that the relationship is positive. Economic growth and carbon emissions were negatively correlated. Carbon emissions negatively affect population density and natural resource depletion. The results of the Panel Granger Causality test revealed a mutual causal relationship between economic growth and energy consumption. However, GDP was found to causally affect carbon emissions in only one direction. In countries with significant mountainous regions, the impulse response function demonstrated the presence of an environmental Kuznets curve. Hence, based on the analysis of the dynamic interplay between energy consumption, economic growth, and levels of environmental degradation across nations, it becomes evident that coexistence plays a vital role in achieving sustainable development rather than pursuing trade-offs.