Energy consumption within policy uncertainty: Considering the climate and economic factors

Abstract

Climate and economic policy are closely correlated with energy consumption. This study investigates the bi-directional causality between renewable (REC) and non-renewable energy consumption (NEC) and policy uncertainties. The time-varying bootstrap rolling window causality test considers structural changes and parameter instability. The results show that the causality between REC and climate policy uncertainty (CPU) is both negative and positive, which mainly stems from the attitudes of authorities towards climate change. If the Administration is positive for climate change mitigation, the correlation between REC and CPU is positive; otherwise, it is negative. The nexus between NEC and CPU is mainly positive, except during global financial crisis periods. This reflects that climate policies are affected by financial crises due to financial constraints. For comparison, we further analyse the dynamic correlation between energy consumption and economic policy uncertainty (EPU). EPU has a significant negative impact on REC in most subperiods, while it has a positive impact on NEC. This can be explained by the fact that non-renewable energy is cheap and convenient to use during economic downturns. Moreover, crude oil has strategic reserve value, especially in the turmoil periods. Regarding policy implications, harmonious and coherent climate and economic policies are important for energy transition.