Sustainable cities are considered paradigmatic to achieve COP27 targets, but scant literature has analyzed the association with CO2 emission (CE) mitigation policies, especially for the G7 economies. This study traces the impacts of urbanization, innovation, income, and energy consumption on CE for the G7 countries from 1995 to 2019. The time period is important due to the rapid increase in urbanization, globalization, and, at the same time, technology diffusion. The study is focused on novel and relevant panel data econometric methods that tackle cross-section dependence, non-normality of data, and heterogeneity in slope coefficients. The empirical outcome first confirms the long-run cointegrating relationship among the variables in the presence of structural breaks by employing the advanced panel cointegration test. Technologies related to environmental management and energy consumption are positively linked with CE. However, the role of income per capita is found to be inverse with CE. In contrast, the effect of urbanization in different models is mixed for CE. Innovation and its interaction with urbanization are crucial for limiting CE and promoting sustainable cities in G7 economies. This indicates that urbanization with environment-friendly innovation can help G7 countries foster sustainable cities and achieve COP27 targets in general, specifically the Sustainable Development Goal of sustainable cities. The results were tested for the multiplicative effect of different variables with urbanization and innovation. Regarding policy insights, the study recommends focusing on smart and sustainable cities with environment-related innovations and transitioning towards cleaner energy from conventional energy consumption.