Environmental Policy Uncertainty

Himadri Palikhe, Georg Schaur and Charles Sims

Journal of the Association of Environmental and Resource Economists, 2024, vol. 11, issue 5, 1135 - 1163

Abstract: We construct a newspaper-based measure of environmental policy uncertainty in which increases in the number of articles that mention environment-related keywords and the words “uncertain” and “uncertainty” represent an increase in environmental policy uncertainty. To validate our measure, we provide evidence that it captures major environmental policy events and that an increase in environmental policy uncertainty lowers firm-level investment in industries sensitive to environmental policies. Therefore, we provide a new measure of environmental policy uncertainty that predicts economic indicators consistent with existing theory, can be continuously monitored to inform policymakers and industry leaders of the consequences of the policymaking process, and can be applied in empirical work to examine and account for environmental policy uncertainty.

Date: 2024
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