Energy-related uncertainty, financial regulations, and environmental sustainability in the United States

Abstract

The US has been classified as being “insufficient” by the Climate Action Tracker, indicating that the current actions and policies fall short of addressing critical environmental challenges. This suggests the need for enhancing the existing policy measures for improving environmental sustainability. To this end, this study investigates the time-varying impact of energy-related uncertainty and financial regulations on sectoral CO2 emissions in the US. The bootstrap rolling-window Granger causality approach is employed to examine quarterly data spanning 1990Q1–2021Q4. The estimation results reveal that energy-related uncertainty increases CO2 emissions in the transportation, residential, manufacturing, and construction sectors. On the other hand, financial regulations are found to reduce CO2 emissions across the agricultural, transportation, residential, manufacturing, and construction sectors. The findings suggest the need for enhanced policy measures to improve energy stability and strengthen financial regulations focusing on climate-related disclosures and facilitating investments in low-carbon initiatives.