The race to zero emission: Can climate policy uncertainty threaten decarbonization?

This study employs a rolling window approach to analyze the correlation between climate policy uncertainty and carbon emissions in the U.S. The findings demonstrate bidirectional causality between climate policy uncertainty and carbon emissions in the full sample. The rolling window results indicate that climate policy uncertainty causes carbon emissions in different subsamples and is influenced by uncertainty surrounding regulations, policy direction, energy prices, and technology adoption. Conversely, carbon emissions cause climate policy uncertainty across different subsamples. This uncertainty stems from increasing doubts about the feasibility and costliness of implementing ambitious climate policies, as well as uncertainty regarding climate laws and policy guidelines. Policymakers should prioritize providing precise and definitive policy details in order to reduce uncertainty and effectively respond to changes. Additionally, the adoption of technology impedes the reduction of emissions, while incentives such as carbon pricing should drive innovation and encourage wider adoption of low-carbon solutions.