Examining economic policy uncertainty's impact on environmental sustainability: Insights from nordic nations

Abstract

The inherent unpredictability of economic policies can create a challenging environment for businesses and government. Such uncertainties may, in turn, have repercussions on environmental quality efforts. Accordingly, this study thoroughly explores the intricate relationships among several vital variables: economic policy uncertainty (EPU), economic growth, natural resource rent (NRR), renewable energy consumption (REC), and environmental quality. The geographical focus of this investigation is four Nordic economies (Sweden, Finland, Norway, and Denmark). The research method is firmly anchored in the STIRPAT framework, with a notable innovative twist. The CS-ARDL simulations estimate the long-term interaction between the series. One key advantage of the estimation model is the ability and robustness to handle reverse causality and endogeneity concerns in time-series econometric models. The empirical findings from this research demonstrate that EPU, economic growth, and NRR are primary indicators of increased CO2 emissions. These factors collectively contribute to the escalating trend of carbon emissions within the Nordic nations. In stark contrast, clean energy consumption emerges as a promising factor that not only counters the rising emissions trend but actively contributes to environmental quality. The importance of transitioning towards cleaner energy sources becomes evident in light of these findings. Policy-makers should recognize that economic policy uncertainty can be a potent driver of environmental pollution and should prioritize formulating transparent and consistent policies that attract investments in clean energy solutions.