Uncertainty in climate policy and energy industry

This study looks at how the climate policy uncertainty (CPU) shocks affect Portugal’s energy sector, specifically examining their effects on turnover, output prices, and labor market dynamics. The structural vector autoregression (SVAR) analysis shows that CPU shocks lead to a significant increase in domestic turnover. Output prices rise both at home and abroad, but foreign prices are more sensitive. The labor market shows a more nuanced reaction, hours worked marginally increase and wages remain unchanged. Furthermore, the study finds that CPU has been a key driver of historical variations in the energy sector, particularly during global policy events like COP26 and domestic policy changes like carbon or car tax changes. These findings establish CPU as significant driver in energy prices and underscore the importance of judicious climate policymaking. • CPU shocks impact Portugal’s energy sector significantly. • Foreign prices show higher sensitivity to CPU than home prices. • CPU’s impact shifted from negative to positive around 2018. • Bayesian SVAR with proxy identification reveals CPU’s strong sectoral effects.