Climate Policy Uncertainty and CO₂ Emissions Dynamics in the USA

ABSTRACT

Uncertainty in climate policies is a new topic of study that could impact environmental issues such as CO₂ emissions. Using a recently developed monthly dataset on the Climate Policy Uncertainty index (CPU), spanning from April 1987 to September 2022, we investigate whether CPU can be used as a tool to predict total and sectoral energy consumption CO₂ emissions changes relying on a time‐varying and frequency‐domain Granger causality techniques for short‐, middle‐, and long‐runs. The current study also investigates symmetric and asymmetric causality between CPU and CO₂ emissions. Our results based on the time‐varying Granger causality test show that uncertainty about climate policies causes CO₂ emissions. Similarly, the frequency‐domain Granger causality test results reveal that CPU is also a significant cause of CO₂ emissions in the long and medium terms. We also search for the asymmetry between CPU and CO₂ emissions since positive and negative CPU shocks may have contrasting impacts on CO₂ emissions. To see whether this effect changes over time, we conduct the asymmetric Granger‐causality test in the frequency domain and verify asymmetrical associations for some cases. Our findings give policymakers and academics fresh views by highlighting the significance of time‐varying and frequency‐domain aspects in the dynamics of the CPU‐CO₂ emissions nexus.