How economic and policy uncertainty shapes the stringency of climate change policies

This paper examines the impact of uncertainty on the stringency of climate change policies using data for 37 advanced and emerging economies over the period 1990–2020. We find that higher uncertainty is significantly associated with greater stringency in market-based climate change policies, such as carbon taxes and emissions trading schemes, while non-market-based and technology-support policies show no statistically significant effects. These results suggest that uncertainty particularly influences policy areas that are politically costly and involve stronger distributive implications. The relationship remains robust across multiple sensitivity tests, including an instrumental variable approach, and is stronger in fully democratic countries and where governments are politically weak, but diminishes during economic downturns. We theoretically and empirically link our results to the literature analyzing the impact of uncertainty on the implementation of structural reforms, according to which periods of high uncertainty reduce the capacity of voters to attribute short-run economic costs to policy decisions.