Impact of economic policy uncertainty on CO2 emissions: evidence from top ten carbon emitter countries

Abstract

Over the last few decades, economic policy uncertainty (EPU) has surged across the globe. Furthermore, EPU affects economic activities, which may also generate strong CO2 emissions. The goal of this study is to explore the impact of EPU (measured by the world uncertainty index) on CO2 emissions in the case of the top ten carbon emitter countries, spanning the period 1990 to 2015. The findings from the PMG-ARDL modelling approach document that the world uncertainty index (WUI) affects CO2 emissions in both the short and the long run. In the short run, a 1% increase in WUI mitigates CO2 emissions by 0.11%, while a 1% rise in WUI escalates CO2 emissions by 0.12% in the long run. The findings could have some substantial practical effects on economic policies through which policy makers try to shrink any uncertainty by organizing and participating in international summits and treaties. In addition, international organizations could also launch certain programs to shrink uncertainties associated with economic policy. Finally, these countries should introduce innovation, renewable energy, and enforce alternative technologies that are environment friendly. Overall, governments must provide strong tax exemptions on the use of clean energy, while R&D budgets should also expand.