Energy consumption, economic policy uncertainty and carbon emissions; causality evidence from resource rich economies

Abstract

The study uses the World Uncertainty Index to analyze the long-run relationship of economic policy uncertainty and energy consumption for countries with high geopolitical risk over the period 1996–2017. The Kao test shows a cointegration association between energy consumption, economic growth, geopolitical risk, economic policy uncertainty, and carbon dioxide (CO2) emissions. The results based on the Panel Pooled Mean GroupAutoregressive Distributed lag model (PMG-ARDL) show that energy consumption and economic growth contribute to (CO2) emissions. Additionally, there is a significant association between economic uncertainty and CO2 emissions in the long-run. The panel causality analysis by Dumitrescu and Hurlin (2012) shows a bidirectional relationship between CO2 emissions and energy consumption, economic policy uncertainty and CO2 emissions, economic growth and CO2 emissions, but a unidirectional causality from CO2 emissions to geopolitical risks. The findings call for vital changes in energy policies to accommodate economic policy uncertainties and geopolitical risks.