Climate policy uncertainty and firm-level carbon dioxide emissions: Assessing the impact in the US market

This paper examines the impact of climate policy uncertainty (CPU) on carbon dioxide (CO2) emissions of 1007 listed firms over 2003-2021. As the urgency to combat climate change and implement effective policies may create uncertainty, it focuses on the Unites States, a significant emitter with a complex policy landscape. Using the two-step system generalized method of moments estimation, the analysis reveals a negative CPU-CO2 emissions relationship, indicating that increased CPU incentivizes firms to adopt sustainable practices, leading to emissions reductions. Capital expenditures have similar effects on emissions, accompanied by increased corporate sustainability engagement. However, no significant relationship is found between research and development (R&D) expenditure and CO2 emissions, nor does CPU significantly moderate the R&D-CO2 emissions nexus. Firms with substantial fixed assets exhibit higher CO2 emissions, while heavy emitters demonstrate limited CPU responsiveness. These findings provide valuable insights for policymakers encouraging corporate participation in emissions reduction efforts.