Exploring the Impacts of Economic Policies, Policy Uncertainty, and Politics on Carbon Emissions

Addressing climate change challenges through managing and mitigating CO2 emissions has taken center stage in shaping economic policies. This paper analyzes the intricate interplay among economic policies, their uncertainty, political dynamics, and CO2 emissions by utilizing the U.S. data from 1973 to 2024. Our empirical results derived from the autoregressive distributed lag (ARDL) model with dummy variables indicate that expansionary monetary policies and higher corporate tax rates may increase CO2 emissions. Political factors, including economic policy uncertainty and the political climate, yield long-term impacts on CO2 emissions. The dominant party in the legislative branch, but not the presidency, emerges as a key determinant in carbon dioxide emission control, underscoring the significance of consensus-building in democratic processes, yet with variation in effects across different chambers. The robustness of these key findings is reaffirmed through different models. The findings suggest that party affiliation does not always dictate environmental policy outcomes, emphasizing the complexity of policy formulation and its representation within legislative bodies, providing insight to decision-makers when economic policies are considered.