Economic Policy Uncertainty and Environmental Sustainability

In the face of accelerating climate change and dwindling natural resources, understanding how fluctuations in governmental decision-making influence environmental trajectories has become a pressing research frontier. Economic policy uncertainty (EPU) captures the unpredictability of fiscal, monetary and regulatory actions, shaping corporate and household choices on energy consumption, investment and innovation. EPU can alter investment decisions, energy consumption patterns and the adoption of sustainable technologies. At firm and national levels, heightened uncertainty may prompt corporations to defer long-term environmental research and development, while simultaneously encouraging risk-averse strategies such as resource efficiency and lower emissions. In parallel, climate policy uncertainty (CPU) directly associated with environmental regulations can modulate both renewable and non-renewable energy demand. These dynamics exhibit considerable heterogeneity across regions and sectors: advanced economies often display an inverted-U relationship between growth and emissions, whereas emerging markets may experience amplified ecological impacts under uncertain policy regimes. Geopolitical risk compounds these effects by introducing external shocks that disrupt supply chains and investment flows, potentially exacerbating environmental degradation or, conversely, stimulating cleaner energy transitions. Together, this body of work emphasises the complex interplay between institutional stability, investor confidence and environmental sustainability, with implications for designing robust policy frameworks that can foster low-carbon development under uncertainty.

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Economic Policy Uncertainty and Environmental Sustainability publication trend

The graph below shows the total number of articles in economic policy uncertainty and environmental sustainability across all publications each year (not limited to Nature Index journals).

Technical terms

Economic Policy Uncertainty (EPU): an index measuring the unpredictability of fiscal, monetary and regulatory policy that affects economic decision-making.

Climate Policy Uncertainty (CPU): a measure quantifying the variance in the formulation and implementation of climate-related regulations and legislation.

Ecological Footprint: a metric for assessing the environmental impact of human activities in terms of resource consumption and waste assimilation requirements.

Augmented Mean Group (AMG) approach: a panel estimation technique that accounts for cross-sectional dependence and heterogeneity when evaluating long-run relationships.

Geopolitical Risk (GPR): the probability of political events such as conflicts or instability influencing economic and environmental outcomes.

References

1. Climate policy uncertainty and firm‐level carbon dioxide emissions: Assessing the impact in the U.S. market. Business Strategy and the Environment (2024).
2. The influence of income, economic policy uncertainty, geopolitical risk, and urbanization on renewable energy investments in G7 countries. Energy Economics (2023).
3. The impact of climate policy uncertainty on renewable and non-renewable energy demand in the United States. Renewable Energy (2022).
4. Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies. Sustainability (2021).