The Green Paradox? Exploring the Impact of Climate Policy Uncertainty on Clean Energy Performance for Sustainable Development

ABSTRACT This paper explores whether global climate policy uncertainty (GCPU) impacts clean energy market performance (CE). The bootstrap full‐sample and sub‐sample rolling‐window Granger causality tests are applied to examine the bidirectional time‐varying causal relationship between the two. The results indicate that the impact of GCPU on CE changes over time. In certain periods, higher GCPU is associated with positive responses in the clean energy market, especially when the policies convey clear signals of support for the transition to a low‐carbon economy. In certain other periods, the increase in policy uncertainty is linked to poor clean energy market performance, indicating that policy instability may constrain market development. Conversely, the negative impact of CE on GCPU suggests that the expansion of the clean energy market may help stabilize policy expectations and reduce climate policy uncertainty. In addition, within an extended CAPM perspective, climate policy uncertainty is treated as a potential transition‐related systematic risk for clean energy assets. The results highlight the dynamic interaction between climate policy uncertainty and clean energy markets and provide insights into the financial dynamics of the sustainable energy transition.