Effects of geopolitical risk on environmental sustainability and the moderating role of environmental policy stringency

Abstract

This study investigates the impact of geopolitical risk (GPR) on consumption-based carbon (CCO2) emissions as well as the moderating role of environmental policy stringency (EPS) on the above relationship. Based on data collected from 27 countries from 1990 to 2020, the basic results from the sample of the study indicate that GPR accelerates CCO2 emissions. Quantile regression results reveal that the effect of GPR is more pronounced in countries with higher CCO2 emissions. Moreover, EPS weakens the escalating effect of GPR on CCO2 emissions. The robust test results validate the findings reported in the basic regression model. The heterogeneity test indicates that the impact of GPR on CCO2 emissions is greater in developing countries compared in developed countries. The study also proposes these policy implications based on the findings: (1) countries should ensure a stable political environment, establish a robust legal system and promote energy transition; and (2) the scope of environmental taxes should be expanded where different tax rates should be imposed in order to be useful in reducing CCO2 emissions.