Impact of economic policy uncertainty on global carbon emissions

Abstract

The article aims to examine the potential effect of Economic Policy Uncertainty (EPU) on the mean and variance of carbon (CO2) emissions by employing a novel nonparametric causality-in-quantiles and quantile-on-quantile on the dataset comprising of 17 economies to test our hypothesis. The results of causality-in-quantiles find that EPU offers a significant yet mixed ability to impact the carbon emissions of most economies. These mixed patterns of impact pertain not only to mean and variance but also across regions. The results of quantile-on-quantile reveal that high EPU leads to an augmented level of carbon emissions. This causality may indicate that macroeconomic and institutional factors influence the carbon emission for all analyzed countries. These findings are particularly useful for practitioners, policymakers, academic researchers, and traders in the carbon market as they could promote the realization of carbon reductions targets by maintaining stable economic policies that have tangible ramifications for carbon emissions behavior.