Impact of economic policy uncertainty on CO2 emissions in the US: Evidence from bootstrap ARDL approach

Abstract

Environmental degradation, global warming, and climate change have become eminent risk factors posing a serious threat to global security. One of the reasons behind those risk factors is greenhouse gases (GHGs) that are mainly consisted of carbon dioxide (CO2) emissions. Previous studies try to discern the economic and noneconomic determinants of CO2 emissions to impede environmental degradation. However, the impact of economic policy uncertainty (EPU) on CO2 emissions remains largely understudied. To address this gap, this study examines the impact of EPU on CO2 emissions in the US using a novel methodology of bootstrap ARDL approach that allows for discerning heterogeneity in the impacts between the short run and the long run. The results indicate that EPU intensifies CO2 emissions in short run, suggesting that high EPU is responsible for environmental degradation in the short run. Conversely, in long run, EPU plunges CO2 emissions, implying that high EPU ameliorates environmental quality in the long run. Such evidence on trade‐off between EPU and CO2 emissions implies that policymakers should adopt measures to reduce EPU in the short run to improve environmental quality. In long run, if policymakers seek to simultaneously control EPU and CO2 emissions, they should search for alternate ways (e.g., renewable energy consumption) to mitigate CO2.