A panel regression approach to the role of economic policy uncertainty in the energy transition: what to expect with the return of trumponomics?

Does economic policy uncertainty affect the climate challenge? Answering this question is relevant in times of high uncertainties. Nonetheless, evidence is limited about the mechanisms linking economic policy uncertainty to the renewable energy transition. Our paper employs panel regression models across 15 countries to investigate economic uncertainty and renewable energy production, incorporating climate policy stringency and additional socio-technical factors such as energy intensity, energy technology RD&D expenditures, imports of renewable technologies, and controlling for GDP and carbon emissions. Under different models and specifications, economic policy uncertainty positively affects, or at worst does not hinder, the energy transition. This suggests that governments may commit more to renewables in times of uncertainty, given higher fossil fuel prices and positive returns in terms of energy security, economic resilience, and environmental sustainability. All other socio-technical drivers perform as expected. Interestingly, policy stringency varies, depending on whether economic uncertainty is considered, whether trade is included and whether a homogeneous group of countries, such as the EU, is observed. Accordingly, the paper examines and confirms the existence of spillovers between countries, exploring different partitions and trade connections to account for the channels through which economic uncertainty and climate policy flow.