CLIMATE POLICY UNDER GEOPOLITICAL UNCERTAINTY : A QUANTITATIVE APPROACH

Abstract: The drivers of CO2 emissions are a widely studied subject of great importance to both individual countries and the global community. However, the inclusion of a quantitative measure of political uncertainty, national and global, has until now been largely overlooked. We investigate how geopolitical uncertainty (GPU) and income interact with CO2 emissions using a panel quantile regression approach for a set of 63 nations over the period 1985-2014. Our key findings are; (i) a consistent negative (positive) relation between global (local) uncertainty and the different CO2 emission distribution levels, (ii) the relation between uncertainty and emissions is heterogeneous across different income groups, (iii) clear and consistent evidence for the Environmental Kuztnet Curve hypothesis with respect to uncertainty, (iiii) when deciding on environmental policy, it is of great importance to consider political uncertainty and whether to use a local or global measure.