The impact of geopolitical risk and policy uncertainty on CO₂ emissions: A CS-ARDL analysis of G7 economies

Type of the article: Research ArticleAbstractThis study aims to empirically examine the dynamic effects of geopolitical risk, economic policy uncertainty, and climate policy uncertainty on CO₂ emissions in G7 economies, utilizing annual data from 1990 to 2022. To account for cross-sectional dependence and parameter heterogeneity, the analysis employs a cross-sectional autoregressive distributed lag (CS-ARDL) model. Diagnostic tests confirm significant cross-sectional dependence and slope heterogeneity among the variables. All variables are integrated of order one, I (1), confirmed by unit root tests. In contrast, the cointegration test provides a strong indication of a stable long-run relationship among geopolitical risk, policy uncertainty measures, and CO₂ emissions. The outcomes show that a 1% rise in the geopolitical risk index leads to a statistically significant long-run rise of 0.042% in per capita CO₂ emissions. In addition, a 1% increase in economic policy uncertainty and climate policy uncertainty is associated with long-run increases of 0.028% and 0.015%, respectively. These results remain robust across alternative estimators. Overall, the evidence suggests that heightened geopolitical risk and policy-related uncertainties significantly exacerbate environmental degradation in G7 economies, highlighting the necessity for strategies that improve stability, reduce uncertainty, and encourage renewable energy adoption as part of a long-term environmental strategy.