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. • This paper provides the first systematic empirical analysis of how economic and political uncertainty shapes the stringency of climate change policies across countries. • Using data for 37 advanced and emerging economies over 1990–2020, we show that uncertainty significantly increases the stringency of market-based climate policies, such as carbon taxes and emissions trading schemes. • Uncertainty has no statistically significant effect on non-market-based or technology-support climate policies, highlighting strong heterogeneity across policy instruments. • The effect of uncertainty is concentrated in fully democratic countries and in politically weak governments, consistent with uncertainty opening windows of opportunity for politically costly reforms. • The impact of uncertainty weakens during economic downturns, when recessions themselves already facilitate reform implementation. • Results are robust to extensive controls, alternative uncertainty measures, and an instrumental-variable strategy exploiting exogenous sources of uncertainty.