Analyzing the Effects of Environmental Policy Stringency under Geopolitical Risk: A Nonlinear Approach

This study examines the impact of geopolitical risk on carbon emissions and the mediating role of environmental policy stringency, using data from 24 countries between 1990 and 2020. The findings suggest that geopolitical risk initially has a statistically insignificant effect on carbon emissions. However, as environmental policy stringency exceeds a specific threshold, this effect turns negative. Notably, non-market-based environmental policies are found to be more effective than market-based policies in reducing emissions during times of geopolitical risk. The threshold level of (5) was found for non-market-based environmental policy stringency using static and dynamic panel threshold regressions. These findings highlight the critical role of strict environmental policies in mitigating carbon emissions, even when energy security is under threat. The study underscores the importance of considering geopolitical risks in designing environmental policies and offers valuable insights for policymakers.