Impact of Economic Policy Uncertainty on Carbon Emissions: Evidence at China’s City Level

Abstract

Estimating the impact of economic policy uncertainty (EPU) on carbon emissions is crucial for formulating emission reduction targets and policies. Using the unbalanced panel data of 325 prefecture-level cities in China from 2001 to 2017 and a two-way fixed-effects model, this paper investigates the impact of economic policy uncertainty on city’s carbon emission intensity. We find that one percentage point increase in economic policy uncertainty will make the city’s carbon emission intensity increase by 4.28 percentage points, and by 0.244 tons per ten thousand yuan at an absolute level. The findings imply that policy makers need to consider the potential threat of economic policy uncertainty on carbon peaking and carbon neutrality in China.