Climate Policy Uncertainty and CO2 Emissions Dynamics in the USA

Uncertainty in climate policies is a new topic of study that could impact environmental issues such as CO2 emissions. Using a recently developed monthly dataset on the Climate Policy Uncertainty index (CPU), spanning from April 1987 to September 2022, we investigate whether CPU can be used as a tool to predict total and sectoral energy consumption CO2 emissions changes relying on a time‐varying and frequency‐domain Granger causality techniques for short‐, middle‐, and long‐runs. The current study also investigates symmetric and asymmetric causality between CPU and CO2 emissions. Our results based on the time‐varying Granger causality test show that uncertainty about climate policies causes CO2 emissions. Similarly, the frequency‐domain Granger causality test results reveal that CPU is also a significant cause of CO2 emissions in the long and medium terms. We also search for the asymmetry between CPU and CO2 emissions since positive and negative CPU shocks may have contrasting impacts on CO2 emissions. To see whether this effect changes over time, we conduct the asymmetric Granger‐causality test in the frequency domain and verify asymmetrical associations for some cases. Our findings give policymakers and academics fresh views by highlighting the significance of time‐varying and frequency‐domain aspects in the dynamics of the CPU‐CO2 emissions nexus.