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 (CO 2 ) emissions. Previous studies try to discern the economic and noneconomic determinants of CO 2 emissions to impede environmental degradation. However, the impact of economic policy uncertainty (EPU) on CO 2 emissions remains largely understudied. To address this gap, this study examines the impact of EPU on CO 2 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 CO 2 emissions in short run, suggesting that high EPU is responsible for environmental degradation in the short run. Conversely, in long run, EPU plunges CO 2 emissions, implying that high EPU ameliorates environmental quality in the long run. Such evidence on trade-off between EPU and CO 2 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 CO 2 emissions, they should search for alternate ways (e.g., renewable energy consumption) to mitigate CO 2 .bootstrap ARDL approach, carbon emissions, economic policy uncertainty | INTRODUCTIONGlobal warming and environmental degradation have evolved as major risk factors to this planet. One of the main reasons of these aforementioned issues is GHGs (greenhouse gases). The most critical gas among all GHGs is CO 2 (carbon dioxide), with its share of 76% in total GHGs (Coskuner et al., 2020). Figure 1 reports the composition of GHGs in the US, which expounds that carbon emissions have the largest share.

Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies

“…On the other hand, REN plunges EF. The findings are backed by [11,44,77]. Some developed economies (e.g., Denmark, Austria, Switzerland, and Finland) expanded the use of renewables and had profoundly impeded environmental degradation.…”

“…The prior literature reports that GDP, population and nonrenewable energy often surge environmental degradation [9]. On the contrary, renewable energy plunges the environmental quality [11].…”

“…In the case of the UK, EPU discourages economic growth and energy consumption, and hence CO 2 emissions decrease in the short-run [10]. Recently, it is also found that EPU decreases the CO 2 emissions in the long-run [11]. Similarly, EPU discourages investment in R&D and renewable energy, which ultimately mitigates CO 2 emissions [12].…”

“…Nevertheless, the limited studies in the prior literature showed contrasting findings. Second, prior studies extensively employed CO 2 emissions as an indicator for environmental degradation [11]. However, CO 2 emission is just a subset of environmental degradation, and it is unable to capture the complex nature of environmental degradation [21].…”

“…There exist a few research outlets that explore the impact of EPU on environmental degradation. Regarding the relationship between EPU and environment, one strand of literature notes that EPU upsurges the environmental degradation [6][7][8][9], whereas second strand of literature reports that EPU plunges environmental degradation [10][11][12]. Besides, there exists a study which highlights that EPU does not affect environment [13].…”