Purpose - The tourism sector not only contributes significantly to gross domestic product, but also plays an important role in the sustainable economic development of a country. Tourism accounts for approximately 8% of global carbon emissions. From flights and boat trips to souvenirs and accommodations, various activities contribute to tourism emissions. Formulating mitigation measures for sustainable tourism requires an understanding of the factors contributing to the increase in tourism CO2 emissions. This study analyses the impact of tourism and financial development on CO2 emissions, while controlling for foreign direct investment (FDI), real income and energy consumption in seven Mediterranean countries that are part of the European Union (Croatia, Cyprus, France, Greece, Italy, Slovenia, and Spain). Methodology - A dynamic panel regression model was used to understand the impact of tourism and financial development on CO2 emissions. The analysis was conducted using annual data from 1995 to 2020 for a sample of seven EU Mediterranean countries. Findings - The empirical results show that the number of tourist arrivals, financial development, real income and energy consumption play an important role in explaining CO2 emissions. Although financial development has an increasing effect on CO2 emissions, tourist arrivals reduce CO2 emissions. It seems that the EU policy to promote sustainable tourism has managed to reduce CO2 emissions. It appears that the tourism sector is using more clean and environmentally friendly technologies in its activities. European countries should continue to take the necessary measures for sustainable tourism. Contribution - This paper aims to contribute to the existing literature in two ways. First, this study examines the impact of tourist arrivals and financial development on environmental degradation so that appropriate measures can be taken to ensure sustainable tourism. Second, this study focuses on seven Mediterranean countries that are part of the EU and have similar tourism characteristics. The tourism sector in these countries depends heavily on beach tourism. Therefore, the results of this analysis will be of particular interest to policy makers.