Modeling the Nexus between Fluctuations in Climate Policy Uncertainty and Energy Efficiency: Evidence from G7 Countries

Presently, there is global confusion over two apparently contrasting objectives. On the one hand, there is a continuous need for energy use to achieve growth objectives, and on the other hand, energy efficiency is indispensable for a secure and sustainable future of energy consumption. This study investigates the non-linear impact of fluctuations in climate policy uncertainty (CPU) on energy efficiency in the case of G7 countries. The study uses panel data for the period 1999–2018. The findings reveal that positive CPU fluctuations decrease energy efficiency, whereas negative CPU fluctuations increase it in the long run. We also examine the response of energy efficiency to CPU fluctuations at low and high levels. The findings declare that low-level fluctuations in CPU increase energy efficiency, and high-level fluctuations in CPU decrease energy efficiency in the long run. In the short run, the CPU is unable to impact energy efficiency.