Energy uncertainty and geopolitical tensions : impacts on European CO2 emissions

Abstract

The European region is currently grappling with energy challenges while facing the ripple effects of escalating tensions between the U.S. and China. Therefore, the study is novel in investigating the impact of energy uncertainty and US-China tension on CO2 emissions in Europe from 2001 to 2019. For this purpose, the Method of Moments of Quantile Regression (MMQR) is applied along with second-generation methods since there is a cross-sectional dependence in the residuals of the regression with employed variables. The findings reveal that energy uncertainty positively impacts CO2 emissions in quantiles 20 %–90 %, suggesting that it affects Europe's economic development and burdens the environment. US-China tension negatively affects carbon dioxide emissions in all quantiles by 10 %–90 %, revealing that the European environment benefits from US-China conflicts. Furthermore, assuming that energy uncertainty is an endogenous variable, the instrument is constructed by taking the average value of the energy uncertainty of the other countries in the region, excluding the local one. Instrumental variable estimates based on this variable indicate that energy uncertainty positively affects CO2 emissions.

HIGHLIGHTS • The work is a pioneer in exploring the effect of energy uncertainty and US-China tension on CO2 emissions in Europe. • For the empirical estimations, the Method of Moments of Quantile Regression (MMQR) is employed. • The results show that energy uncertainty has a positive impact on CO2 emissions in quantiles 20 %–90 %. • Moreover, the effect of US-China tension on carbon dioxide emissions is negative across all quantiles by 10 %–90 %.