Energy 275 (2023) 127383

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Energy
journal homepage: www.elsevier.com/locate/energy

The dynamic relationship between climate policy uncertainty and

renewable energy in the US: Applying the novel Fourier augmented
autoregressive distributed lags approach
Qasim Raza Syed a, *, 1, Nicholas Apergis b, 1, Soo Khoon Goh c, 1
a
Centre for Policy Research and International Studies, Universiti Sains Malaysia, Malaysia
b
Department of Banking and Financial Management, 329/Main Bld., University of Piraeus, Greece
c
Centre for Policy Research & International Studies, Universiti Sains Malaysia, Malaysia

A R T I C L E I N F O A B S T R A C T

Handling Editor: Isabel Soares Renewable energy consumption is deemed imperative to attain higher economic growth without affecting
environmental degradation. Hence, probing its influencing factors is an indispensable field of research in the
JEL classification: literature on energy economics. The existing literature discerns several influencing factors of renewable energy
Q20 consumption, however, the dynamic relationship between climate policy uncertainty and renewable energy
Q50
consumption remains ignored. Hence, we probe the dynamic impact of climate policy uncertainty on renewable
C22
energy consumption. Using monthly dataset for the US, the findings from the novel Fourier augmented autor­
Keywords:
egressive distributed lag model reveal that climate policy uncertainty plunges renewable energy consumption
Renewable energy
across the long- and short-run. Finally, the study proposes to reduce the uncertainty in climate policies to upsurge
Fourier augmented ARDL approach
Climate policy uncertainty renewable energy consumption.
SOR unit Root test

1. Introduction
It is a well-established point that renewable energy is immensely
important for both the economy and the environment. Renewable en­
ergy reduces the dependence on finite energy sources, such as petro­
leum, gas, and coal. Likewise, it improves energy security and stability,
which are highly imperative issues nowadays. It contributes to economic
growth (EG) and also provides employment opportunities [1,2].
Renewable energy yields a cost-effective solution to increased energy
demand. On top of this, it helps to curb greenhouse gas emissions and,
hence, aids in mitigating climate change [3–7]. Hence, to escalate EG
without affecting the environmental quality, renewable energy could be
the right choice. Therefore, the entire world is striving to increase
renewable energy consumption (REN). However, the high installation
cost of renewables coupled with social, economic, and political factors
discourages REN. According to the World Energy Outlook report 2020,2
the proportion of REN in the global energy consumption has been about
19% which is yet very low, with non-renewable energy consumption
being still very high. Therefore, discerning the drivers for REN is inev­
itable. This aforementioned investigation would help policymakers
devise policies to achieve SDGs, which will increase the well-being of the
human race.
The current literature identifies several factors affecting REN, such as
EG [8], energy prices [9], and environmental degradation [10,11],
among others. However, the literature yet remains relatively scarce
about the nexus between uncertainty in environmental/climate policies
(CPU) and REN. We have found two papers that examine this issue [12]
probe the impact of CPU on REN using the TVP-SVAR model. The study
highlight that CPU escalates REN in the short and long run, whereas it
mitigates REN in the medium run. Similarly, [13] employ the ARDL
model to explore the impact of CPU on REN. Their findings report that
CPU does not affect REN in the short and long run.3

* Corresponding author.
E-mail addresses: qasimrazasyed.economics@gmail.com (Q.R. Syed), napergis@unipi.gr (N. Apergis), sookhoongoh@gmail.com (S.K. Goh).
1
All authors equally contributed.
2
https://gotcp.net/wp-content/uploads/2021/10/WEO2021_Launch_Presentation-1.pdf.
3
Although [13] reported a positive long-run relationship between CPU and REN in the abstract of their paper, the authors reported an insignificant relationship
between CPU and REN in the result section, as shown in Table 6, p. 662.

https://doi.org/10.1016/j.energy.2023.127383
Received 8 July 2022; Received in revised form 16 February 2023; Accepted 29 March 2023
Available online 11 April 2023
0360-5442/© 2023 Elsevier Ltd. All rights reserved.
Q.R. Syed et al.
The contrasting outcomes indicate that there exists more than one
theoretical channel that connects CPU with REN. Hence, this paper
discusses the three channels that link CPU with REN. First, the ‘positive
channel/effect’ suggests that CPU compels investors to start investing in
clean technologies since CPU escalates the risk of using non-renewable
energy [14]. As a result, REN will increase [15,16]. In contrast, the
‘negative channel/effect’ suggests that CPU impedes the level of in­
vestments in green technologies, R&D, and innovation [17,18]. Hence,
REN is expected to decrease [19]. The third channel is the ‘energy prices
channel’, which points out that CPU decreases oil prices [20], thereby
the demand for non-renewable energy will experience an increase and,
hence, REN witnesses a reduction over time [21].
Overall, it is crucial to explore the CPU-REN nexus to confirm the net
impact of CPU on REN. The inevitability of investigating the CPU-REN
nexus can be based on the fact that in the recent United Nations
Climate Conference (COP26), the prime objective of the member nations
has been to escalate REN and to explore the factors which are imperative
for the energy transition process. It was also discussed that governance,
through environmental policies, can help economies to escalate the pace
of energy transition. However, the uncertainty related to CPU could be
the key factor that affects REN. Thus, probing the nexus between CPU-
REN will definitely help to achieve COP26 targets (i.e., upsurge REN
to curb carbon emissions).
In light of the above-mentioned points, our goal is to test whether
CPU affects REN in the US. The motivation for choosing the US for this
analysis is that the US stands first in terms of the biggest economy, while
it is the second-largest carbon emitter [22]. Furthermore, according to a
recent report by the Energy Information Administration,4 the US is
among the top countries that uses REN. Moreover, in terms of renewable
installed capacity, the US lies among the top three countries. Consid­
ering the level of carbon emissions in the US, REN is indispensable to
achieving sustainable development. There are various environmental
policies in the US. However, the risk factor is associated with them. For
instance, federal carbon taxes have not yet been levied in the US, but the
higher growth in emissions has been creating the likelihood of carbon
taxation in the near future and, hence, escalating CPU in the US. In
addition, the announcement to withdraw from the Paris Agreement has
upsurged CPU in the US. Similarly, the variations in tariffs and other
taxes (i.e., levied on renewables) originate uncertainty in environmental
policies in the US. Thus, it is essential to explore the impact of CPU as
one of the determinants of REN.
The contribution of this paper is as follows. First, the current liter­
ature on the dynamic impact of CPU on REN is still scant and provides
contradictory findings. Hence, our analysis reinvestigates the impact of
CPU on REN to provide complementary findings, which will help to
reach a more definitive conclusion. Second, the previous studies on the
CPU-REN nexus ignore a detailed discussion of the theoretical linkages
between CPU and REN; however, our work aims to fill this gap by dis­
cussing the theoretical aspects which link CPU with REN. Third, our
work performs a novel smooth and sharp structural breaks unit root test
recommended by Shahbaz et al. [23] (henceforth, the SOR test) to
investigate the order of integration. The SOR unit root test handles more
than one structural break of various dynamic natures, providing more
trustworthy results. Fourth, we use the novel Fourier augmented ARDL
approach (FA-ARDL) that outperforms the contemporary methods in
two aspects: i) it makes use of the augmented ARDL of [24] which probes
cointegration by applying three tests (see the methodology section for
more details); ii) it applies the Fourier transformation to cover multiple
structural breaks of different dynamic natures. Finally, we perform two
sensitivity analyses to discern whether the findings are consistent with
the baseline results.
This paper is organized as follows. Section 2 contains a review of the
literature. Section 3 presents a description of the model, methodology,
4
https://www.eia.gov/pressroom/presentations/capuano_01292020.pdf.
2
Energy 275 (2023) 127383
and data. Section 4 discusses the empirical findings. Section 5 provides
concluding remarks, policy implications, and future research avenues.
2. Review of related literature
There are several drivers found in the REN modeling. In general, the
literature broadly segregates the drivers of REN into economic and
environmental indicators. Factors, such as EG, inflation, and energy
prices are key economic indicators that affect the demand for renew­
ables, whereas CO2 emissions are the most inevitable environmental
factor which impacts REN.
It is worth noting that EG is the most widely used economic indicator
while modeling REN. Empirical studies find that EG leads to higher
levels of income which makes renewable energy afforable). As a result,
EG promotes REN. Several research outlets reach this conclusion. For
instance, Soytas and Sari [25] investigate the causal relationships be­
tween REN and EG in the case of G7 countries. Their results document
that REN and EG are positively associated. Sadorsky [8] notes that EG is
an influencing factor of REN. For Ghana, [26] test the causal relation­
ship between REN and economic growth. The study claims that EG
contributes to REN. Likewise, [27] note that EG, financial development,
and globalization enhance REN. Parallel to this, [28] probe the
REN-industrial production nexus. They report that bidirectional cau­
sality exists between REN and industrial production.
Another line of research posits that EG has an adverse impact on
REN. As economies grow, there may be greater demand for energy from
fossil fuels, which are cheaper and more readily available than renew­
able sources. Next, governments may reduce subsidies for renewable
energy, making renewable energy less economically viable. Moreover,
in some countries, there may be a lack of infrastructure to support the
growth of renewable energy, hindering its development and consump­
tion. Based on these aforementioned arguments, certain studies justify
the adverse impact of EG on REN. For instance, Refs. [29,30] explore the
causal impact of various sources of renewables and EG in the US. They
report that EG has a detrimental impact on a few renewable energy
sources. In addition, there are a few empirical studies which note that
EG has an insignificant impact on REN. For instance, Ref. [31] employ
the VAR model to examine the connectedness between REN and EG.
Their study concludes that EG does not affect REN in the US. Similarly,
[32] report that IPI has an insignificant impact on REN in the case of the
US.
The level of prices is another essential determinant of REN. Theo­
retically, a higher general price level (inflation) plummets the cost of
buying/purchasing and, hence, REN is expected to decrease over time.
In the case of Turkey, [33] conclude that inflation (CPI) posits an
adverse impact on REN in the long run. In the case of African countries,
[34] note that CPI impedes REN in the long run. In contrast, several
researchers claim that CPI escalates REN. For instance, in the case of the
European Union (EU) countries, [35] illustrate that CPI upsurges REN
[36] highlight that CPI positively impacts REN at lower quantiles in
BRICS countries, whereas CPI and REN are negatively linked at higher
quantiles.
In addition to CPI, oil prices have also been incorporated as a key
independent variable while modeling REN. Higher oil prices plunge non-
renewable energy consumption. Since renewable and non-renewable
energy is substituted for each other, a decline in non-renewables esca­
lates REN [37] investigate whether non-renewable energy prices affect
REN in the US. The authors report that a shock in non-renewable energy
prices enhances REN [38] explore the impact of oil prices on REN for 97
selected countries. The authors report that higher oil prices promote
REN. In the case of the US, [39] adopt the NARDL approach that pro­
vides evidence in favor of the positive impact of oil prices on REN [40]
conclude that a positive shock in oil prices enhances REN in Tunisia. For
selected Asian economies, [41] show that oil prices raise REN.
Parallel to this, many researchers confirm that oil prices decrease
REN. For instance, Ref. [11] examine the determining factors of REN
Q.R. Syed et al.
across various countries with different levels of income. Their findings
document that oil prices decrease REN, implying that both
non-renewable energy and renewable energy are complements of each
other [42] explore the dynamic impact of oil prices on REN in 64
selected countries. The authors note that oil prices do not affect REN,
implying that non-renewable energy and renewable energy are com­
plements. In the case of Russia, [43] note that CPI has a detrimental
impact on REN [44] report that oil prices decrease REN in the case of
Azerbaijan. In the case of Iran, Muhtarov et al. (2022b) reach the same
conclusion.
It is worth noting that carbon emissions are a critical environmental
indicator that affects REN. A strand of the literature claims that CO2
decreases REN. For instance, Ref. [45] reveal that emissions plunge REN
in selected African countries. Similar conclusions have been made by
Ref. [46] who note that carbon emissions impede REN in the African
region. In contrast, the existing literature also explains the positive
impact of CO2 emissions on REN. For instance, Ref. [47] report that
emissions escalate REN in the OECD countries, while a few studies claim
that emissions do not impact REN [48] conclude that emissions have an
insignificant impact on REN in China.
Recently, there were studies examining the nexus between CPU and
REN [13] aim to discern the short- and long-run impacts of CPU on REN
and non-renewable energy consumption. The authors adopt the ADF and
[49] unit root tests to probe the order of integration in the dataset, while
the ARDL approach is employed for investigating the short- and long-run
estimates. The study concludes that CPU does not affect REN in the short
and long run [12] aim at investigating the impact of shock in CPU on
REN across the short, medium, and long run. The authors use the
TVP-SVAR model for probing the short-, medium-, and long-run re­
lationships. The study notes that CPU and REN are positively associated
with each other in the short and long run, whilst there exists a negative
relationship between them in the medium run. Although the studies of
[12,13] investigate the CPU-REN nexus, there are some limitations in
their studies. For instance, Ref. [13] make use of the ARDL testing
approach by Ref. [50] which only applies the overall F-test on all lagged
variables,5 whereas we use the augmented ARDL bounds test of [24] that
covers three tests (see the methodology section for more details). In
addition to this, [13] use dummies to capture the structural breaks,
whereas we use the Fourier transformation, which outperforms the
dummies approach [12] do not cover structural breaks nor develop their
analysis based on economic theory. However, we use the neoclassical
demand function (which has an economic basis) and counter the
structural breaks.
While concluding the literature review of the determinants of REN, it
is apparent that the existing literature explores various factors as de­
terminants of REN. However, the literature on the dynamic impact of
CPU on REN is scanty. On top of this, the existing line of research related
to the CPU-REN nexus provides inconclusive outcomes. Thus, we aim to
reinvestigate the CPU-REN relationship with a robust methodology as
describe below.
3. Model, methodology, and data
3.1. Model
There exist two strands of opposite literature regarding the de­
terminants of REN. One strand of literature develops the model by
choosing the variables that have previously been employed in different
studies [38,51] while the second strand uses the neoclassical demand
function, which indicates that the quantity demanded of a
5
There are two tests in the ARDL test by Ref. [50] to determine the status of
cointegration. These two tests are the overall F- test for all lagged variables and
the t-test for the lagged of dependent variable. Goh and McNown (2015) show
that performing only one of the tests may create spurious cointegration status.
3
Energy 275 (2023) 127383
commodity/product is a function of price and income [11,52]. The
present study also follows the latter strand, as it contains economic
foundations. The empirical model of the present study is reported as
follows:
RENt = α + β1 CPUt + β2 IPIt + β3 OILt + β4 CO2t + εt (1)
where REN, CPU, IPI, OIL, and CO2 denote renewable energy, climate
policy uncertainty, industrial production index, oil prices, and CO2
emissions, respectively. βi (i = 1, …,4) represents the coefficient of the
estimates, α represents the intercept, and εt is the error term. Since we
use the neoclassical demand function, it is necessary to incorporate in­
come and prices as independent variables. To capture the impact of
income, we use IPI due to the unavailability of data on monthly GDP. To
capture the impact of prices, we make use of oil prices as one of the
explanatory variables. Since environmental quality has a profound
impact on economic agents’ preferences/decisions regarding an up­
surge/plunge in REN, we include CO2 (i.e., a proxy of environmental
quality) as another explanatory variable.
[10] and Shafiullah et al. [32] adopt these explanatory variables (i.
e., IPI, Oil, and CO2) while modeling REN. The CPU can be either pos­
itive or negative based on the magnitude of the proposed channels. The
‘positive channel’ points out that CPU leads to higher investments in
clean energy, R&D, and innovations, with REN witnessing an increase.
Whereas, the ‘negative channel’ notes that CPU impedes R&D, in­
novations, and investments in clean energy and, hence, decreases REN.
In addition, the ‘energy prices channel’ delineates that CPU plunges oil
prices which in turn enhances non-renewable energy consumption. As a
result, REN experiences a decline over time. We document the theoret­
ical linkages between CPU and REN in Fig. 1.
Next, if the IPI is positive, suggesting that IPI ameliorates REN [28].
If the OIL is positive, implying that higher energy prices increase REN.
Finally, if CO2 is negative, suggesting that environmental degradation
transmits a signal in the market that policymakers have not been giving
priority to the environment and there are odds of still using
non-renewables.
3.2. SOR unit root test
Investigating the appearance of stationarity is almost unavoidable in
the time series dataset. To discern the stationarity condition, several unit
root tests, such as the ADF-based tests, LM-based tests, and Fourier-
based tests (e.g., Fourier-ADF and Fourier-LM tests) are commonly
used in empirical studies. However, these tests suffer from certain
drawbacks, generating a strong likelihood of wrong inferences [53]. For
instance, the ADF test does not cover the presence of structural breaks.
Next, this test has low explanatory power, which makes it unsuitable in
the case of small datasets [54]. By contrast, [23] propose a two-step
procedure in SOR unit root tests, which can capture state-dependent
nonlinearity and sharp and smooth breaks without creating
over-fitting problems. Therefore, the analysis uses the SOR test in con­
cert with several conventional unit root tests (e.g., GLS test and Zivot
and Andrew test). The SOR test outperforms other conventional tests
since it accounts for the data’s sharp and smooth structural breaks,
providing reliable estimates. For deeper insights into the methodology
of the novel SOR test, refer to Ref. [23].
3.3. Fourier augmented ARDL approach
To examine whether CPU affects REN, we employ the novel Fourier
augmented ARDL (FA-ARDL) approach. This section initially explains
the methodology of augmented ARDL (A-ARDL), while the latter part
expounds on how we transform the A-ARDL model into the FA-ARDL
model.
To investigate the cointegration across variables, [50] (PSS here­
after) put forward the ARDL bounds test. According to the relevant
Q.R. Syed et al. Energy 275 (2023) 127383

Fig. 1. Theoretical linkages between CPU and REN.

literature, it is believed that the aforementioned bounds testing pro­ concern by rendering a new F-test (i.e., F-test(2)). Hence, cointegration
cedure is superior to other methods (e.g., FMOLS, etc.) due to its ability exists if the H1 of the aforementioned tests is not rejected. Due to this,
to provide reliable findings if the dataset has mixed ordering [55]. In the the A-ARDL method seems to be relatively superior since it shows a
ARDL specification, Equation (2) can be specified as follows: comprehensive image of cointegration.
y p q The A-ARDL approach is not capable of covering smooth and sharp
∑ ∑ ∑
ΔRENt = α+ φi ΔRENt− i + βi ΔCO2t− i + γ i ΔCPUt− i
structural breaks [53] reported that disregarding the breaks may lead to
i=1 i=0 i=0 weak inferences. Thus, this study uses the Fourier approximation
∑
m ∑
n
because it can handle the presence of smooth and sharp breaks [57,58].
+ ωi ΔIPIt− i + ∂i ΔOILt− i + π1 RENt− 1 + π2 CO2t− 1 + π3 CPUt−
i=0 i=0
1
It is worth noting that the Fourier approximation does not require any
prior information about the nature, frequency, and date/time of struc­
+ π 4 IPIt− 1 + π5 OILt− 1 + vt
tural breaks. Moreover, unlike structural break dummies, the Fourier
(2) approximation does not require several parameters and, hence, provides
good size and power properties [53]. Based on the above arguments, the
In Equation (8), α is the intercept, while φi , βi , γi , ωi , and ∂i are short-run
analysis employs the A-ARDL model with the Fourier approximation (i.
coefficients. Furthermore, πi delineates estimates retrieved in the long
e., the Fourier augmented ARDL approach) to explore the impact of CPU
run. Next, y, p, q, m, and n denote the lag order, and v t is the error term.
on REN. The final expression of the FA-ARDL model yields:
A critical assumption of the ARDL bounds test is that there does not exist
any impact of the dependent variable on the independent variable(s), y
∑ p
∑ q
∑
implying that the considered variables are (weakly) exogenous. None­ ΔRENt = α+ φi ΔRENt− i + βi ΔCO2t− i + γi ΔCPUt− i

theless, the likelihood of this assumption being fulfilled is low. Thus, if

i=1 i=0 i=0
∑m ∑
n
the assumption of weak exogeneity does not hold, the distribution of the + ωi ΔIPIt− i + ∂i ΔOILt− i + π1 RENt− 1 + π2 CO2t−
(3)
1
ARDL bounds test will not be valid [56]. i=0 i=0

Next, PSS suggested two tests to confirm the cointegration. That is,
the F-test (Ho: π1 = π2 = π3 = π4 = π5 = 0) on all lagged-level vari­
ables (henceforth F-test(1)) and the t-test (Ho: π1 = 0) on the lagged-
level dependent variable (t-test(1)). Nevertheless, in the A-ARDL pro­
cedure, supplementary F-tests (henceforth F-test(2)) on the lagged level
independent variables (Ho: π 2 = π3 = π4 = π5 = 0) is proposed [24,
56], which is complementary to the aforesaid F-test(1) and t-test(1) by
PSS [24,56] claim that these three tests should be employed to segregate
cointegration and non-cointegration in consort with degenerate cases.
There are two degenerate cases (i.e., degenerate case-I and case-II in
ARDL modeling,6 with both of them inferring that there does not exist
any cointegration across the variables. The dependent variable must be
integrated at I (1) to avoid degenerate case-I. Parallel to this, conven­
tional unit root tests are notorious for their low power, hence, they can
render unreliable results [23]. Thus, the A-ARDL test handles this
6
Degenerate case-I appears when lagged-level independent variable(s) are
found to be insignificant in the A-ARDL model while degenerate case II appears
when the lagged level dependent variable is found to be insignificant.
+ π3 CPUt− 1 + π 4 IPIt− 1 + π5 OILt− 1
( ) ( )
2πkt 2π kt
+ μ1 sin + μ2 cos + vt
T T
where μ1 is amplitude whereas μ2 is the displacement of the frequency
component. Next, π = 3.14, k denotes the frequency of Fourier, t denotes
the trend, and T represents the sample size. For further details related to
the FA-ARDL modeling, the reader is advised to see the studies of [59].
Based on the aforesaid discussion, the analysis employs FA-ARDL
modeling because it not only covers multiple structural breaks of
different dynamics/nature but also provides a clear/complete situation
of cointegration with the help of an additional F-test.
3.4. Data
The current study adopts monthly time-series data for the US for the
period 2000–2020. Next, the dependent variable is total/aggregate
renewable energy consumption (REN), measured as trillion British
thermal units. It is worth noting that REN is a combination/sum of
various renewable energy sources, such as geothermal energy, solar

4
Q.R. Syed et al.
energy, wood energy, hydroelectric power energy, wind energy, ethanol
energy, and biomass energy, among others. The data on REN is extracted
from Energy Information Administration (EIA) [32] use the same
proxy/measure for renewable energy consumption to examine the
impact of economic uncertainty on REN in the US.
To build our model based on the neoclassical demand function, and
avoid the issue of omitted variables bias, we include three control var­
iables, namely, the industrial production index (IPI), carbon dioxide
emissions (CO2), and oil prices (OIL). It is worth noting that data on
monthly GDP is unavailable, therefore, we use IPI as a proxy for it. IPI is
measured as the level of production against the base year 2012, CO2
emissions are measured in metric tons, and oil prices are proxied by the
WTI index (West Texas Intermediate). The data on IPI is sourced from
the Federal Reserve Economic Data (FRED), whereas OIL and CO2 are
from the EIA database [10] use the same set of control variables to
investigate the drivers of renewable energy deployment.
Regarding the core/key independent variable of this empirical
analysis, the analysis employs the climate policy uncertainty (CPU)
index, developed by Ref. [60]. It is a point to note that [60] follows the
methodology of [61]; who make use of a text-mining approach to
measure economic policy uncertainty from data extracted from leading
daily newspapers. Therefore, Gavriilidis (2021) measures CPU based on
the frequency of eight leading newspaper articles that report words,
such as climate risk, climate uncertainty, and greenhouse gases [62]
adopt the same variable to probe the nexus between climate policy
uncertainty and tourism in the US. The data on the CPU index is avail­
able, on the monthly frequency, at policyuncertainty.com.
To elaborate the dataset in detail, we plot it in Fig. 2 from 2000 to
2020. As can be seen from Fig. 1, CPU is the highest in 2019, but is the
lowest during the early 2000s. In 2019, the Trump administration tried
to weaken or relax the existing environmental policies, such as the Clean
Power Plan, Vehicle Emission Standards, and policies related to methane
emissions, among others. On top of this, there was a conflict between
state and federal governments on climate policies, generating a high
level of uncertainty. Interestingly, REN follows an increasing trend with
its highest value in 2019. In 2019, the US provided brave incentives for
renewable energy promotion, and also set state-level aims and mandates
for renewable energy adoption. In addition, there was a remarkable
increase in renewable energy technology in consort with a significant
cut in the cost of renewable energy installation. The combination of all
these aforementioned factors results in a profound increment in REN in
2019.
Parallel to this, the series of IPI witnessed a profound decrease during
the financial crisis (2009) and the COVID-19 pandemic (2020). Oil
prices remained at the highest level just before the inception of the
financial crisis in 2008. The key reasons behind the hike in oil prices
were a hike in demand in emerging economies, geopolitical tensions (e.
g., middle-east crisis), a weak dollar, and a decline in supply from the
mature oil fields. CO2 reached its peak in 2003, while it was at its lowest
level in 2020 (i.e., the COVID-19 pandemic).
Next, we convert all variables into their natural logarithmic form to
handle heteroskedasticity and to provide a meaningful interpretation of
the estimates. Table 1 reports the descriptive statistics of the considered
dataset. It is worth noting that CO2 has the highest mean value, whereas
OIL contains the lowest mean value. The series of OIL contains the
highest variation, while IPI has the lowest standard deviation. Except for
IPI and OIL, all other variables are positively skewed. The series of OIL
has the highest kurtosis. While explaining the distribution of the dataset,
it is worth noting that the entire dataset is non-normally distributed. It is
imperative to explore the unit root/stationary property in the dataset in
order to avoid spurious outcomes. So, we employ the GLS unit root test,7
Zivot and Andrew unit root test (henceforth ZA test),8 and the SOR test
7
For details on GLS unit root test, see Elliot et al. (1992).
8
For details on ZA unit root test, see Zivot and Andrew (1992).
5
Energy 275 (2023) 127383
of [23].
4. Results and discussion
4.1. Outcomes from unit root tests
As depicted in Table 2, the conclusions from the GLS test and ZA tests
document that we could not reject H0 at I(0), indicating that the entire
dataset possesses unit root. In contrast, we do reject the null hypothesis
at I(1), reporting that the entire dataset is stationary in their first dif­
ferences. The break dates highlighted from the ZA unit root test delin­
eate two events/shocks: the COVID-19 pandemic that covers the period
2020,9 and the global financial crisis event that occurred over the period
2007–2009. For instance, the break data for CO2 at I(1) is 2020M3,
indicating the COVID-19 pandemic, where strict lockdown policies were
implemented across the globe. As a result, consumption and production
activities have witnessed a profound decline, which in turn plunged
carbon emissions.
The drawback of the ZA unit root test is its inability to cover multiple
breaks. However, the presence of multiple structural breaks can yield
unreliable findings, while testing the stationarity of the dataset [63]. To
handle this, [23] put forward the SOR unit root test that handles
structural breaks. The findings from the SOR test are reported in Table 3.
The calculated t-statistic values are smaller than the critical values at I
(0), concluding that we do not reject the null hypothesis at I(0) and thus
report that these variables are not integrated at I(0). Conversely, we
reject the null hypothesis at I(1), highlighting that the entire dataset
follows I(1). As mentioned earlier, the SOR unit root test does not
require any prior knowledge about the exact date, nature, and frequency
of structural breaks. Furthermore, it covers the presence of several sharp
and smooth structural breaks. Therefore, we do not explicitly report the
frequency and the date of break events.
4.2. Results of cointegration using FA-ARDL bounds testing
Next, we provide the findings from the FA-ARDL bounds test. We
present the summary of cointegration in Table 4. It is worth mentioning
that all three tests should be performed to get the complete picture of
cointegration. As delineated in Table 4, the calculated values of the F-
test(1), t-test(1), and F-test(2) are greater than the upper bound values.
So, we reject the null hypotheses and report that a cointegration status is
found between REN, CPU, CO2, Oil, and IPI.
4.3. Estimates from novel FA-ARDL approach
In Table 5, section-A delineates the long-run estimates, which are
statistically significant except for IPI. The coefficient of the CPU is
negative, indicating that the CPU plunges REN. Particularly, the value of
CPU is − 0.025, inferring that a 1% rise in CPU fosters a 0.025% decrease
in REN. We report that the combined effect of the energy prices channel
and the negative channel is greater than the magnitude of the positive
channel. The possible reason for these findings could be that CPU
plunges investments in clean technology, R&D, and innovations. As a
result, REN witnesses a decrease over time. In addition, CPU may
decrease energy prices (i.e., oil prices), leading to high non-renewable
energy consumption. The higher non-renewable energy consumption
simultaneously mitigates REN. Uncertainty in climate policies may
indicate that the government is not perceiving the issue of environ­
mental degradation as a serious one. This perception encourages in­
dividuals to keep using fossil fuel energy based on its cost-effectiveness
and, hence, REN will decrease.
9
Although the COVID-19 pandemic spans the period 2020 and onwards, the
analysis just mentioned the 2020 as COVID-19 pandemic because the data used
just covers the year 2020.
Q.R. Syed et al. Energy 275 (2023) 127383

Fig. 2. Historical trend of selected variables.

Table 1 Table 3
Descriptive statistics. SOR unit root test.
CPU REN CO2 IPI OIL Indicator t-statistic α2 T Γ αK
Mean 1.41 1.87 2.78 1.51 1.38 Findings at level
Std. Dev 0.29 0.36 0.19 0.12 0.75 CO2 − 3.21 1.82 0.49 0.1 − 0.02
Skewness 0.71 0.01 0.03 0.00 0.00 REN − 3.24 6.21 0.47 0.1 0.53
Kurtosis 0.08 0.03 0.51 0.01 0.72 CPU − 2.50 3.36 0.32 1 0.29
Jarque-Bera (0.00)*** (0.00)*** (0.00)*** (0.00)*** (0.00)*** IPI − 3.80 4.54 0.59 0.2 0.06
OIL − 4.62 3.32 0.22 0.2 0.88
*, ** and *** shows level of significance at 10%, 5% and 1% respectively. (.) Findings at first difference
indicates probability value. CO2 − 4.91 1.12 0.79 0.1 − 0.06
REN − 5.21 6.27 0.49 0.2 0.56
CPU − 5.30 5.36 0.39 0.1 0.37
Table 2 IPI − 4.89 4.94 0.79 0.2 0.12
GLS and ZA unit root tests. OIL − 4.92 4.30 0.52 0.2 0.91

GLS test ZA test Note: The critical values at 1%, 5% and 10% are − 4.807, − 4.281, and − 4.007,
respectively. Next, α2, T, γ, and αK are intercept, trend, slope parameter, and
Indicator I(0) I(1) I(0) I(1)
threshold parameters, respectively.
CPU − 1.01 − 7.32*** − 1.01 [2007M12] − 5.90*** [2019M9]
REN − 0.87 − 9.14*** − 1.13 [2020M11] − 6.01*** [2020M1]
CO2 − 1.23 − 5.23*** − 3.00 [2008M1] − 6.27*** [2020M3] One real-life example of the adverse impact of CPU on REN in the US
IPI − 1.46 − 11.15*** − 3.01 [2007M12] − 5.97*** [2020M2] is the fluctuation of the Production Tax Credit (PTC) for wind energy.
OIL − 1.15 − 9.97*** − 1.23 [2020M1] − 6.01*** [2008M7] The PTC provides a per-kilowatt-hour tax credit for wind energy pro­
Notes: the critical value of the ZA unit root test at 1% is − 5.34, while it turns duction, helping to make wind energy more economically competitive
− 2.57 in the case of the GLS test. with traditional energy sources. However, PTC has often been extended
[.] reports the break date. on a short-term basis, creating uncertainty for the wind energy industry
*p < 0.10. and making long-term planning and investment more difficult. For
**p < 0.05. example, in 2012, PTC was allowed to expire before being retroactively
***p < 0.01.

6
Q.R. Syed et al. Energy 275 (2023) 127383

Table 4 consistent with those provided by Ref. [64]. The coefficient of CPU is
Cointegration tests. negative, inferring that climate policy uncertainty discourages the use of
Test Calculated value I (0) I (1) renewables. Particularly, the value of CPU is − 0.011, which indicates
that a 1% upsurge in CPU mitigates REN by 0.011%. The pertinent
F-test(1) 23.67 4.40 5.72
t-test(1) − 9.76 − 3.96 − 4.96 reasons could be that CPU propels individuals to use cheap energy
F-test(2) 12.62 3.56 5.97 sources (i.e., non-renewable energy), which, in turn, plunges REN.
Moreover, higher CPU may discourage investments in clean energy, and,
The critical values of the F-test (1)and t-test (1) are taken from Ref. [50]. The
critical values for F-test (2) are taken from Ref. [24] at k = 4 and n = ∞. These
hence, the use of renewables plunges. In addition, CPU compels in­
critical values are gathered at a 1% level. dividuals to adopt the ‘wait and see’ policy. By doing so, individuals use
non-renewables and avoid renewables until a clear climate policy is
introduced. The finding on the short-run impact of CPU on REN is
Table 5 consistent with the findings of [12]. Thereafter, IPI indicates that in­
Fourier augmented ARDL (2, 2, 0, 0, 2) estimates. dustrial production does not explain REN in the short run. Next, the
Dependent variable: REN coefficient of OIL is positive, inferring that oil prices upsurge the de­
mand for renewables. The coefficient of CO2 is negative, implying that
Variable Coefficient p-value
emissions decrease REN in the short run. In addition, in the short run,
Long-run findings (section-A) the higher levels of emissions imply that there exists leniency related to
CPUt-1 − 0.025* 0.06
environmental protection and the government follows the tolerance
IPIt-1 0.215 0.13
OILt-1 0.058*** 0.00 policy regarding environmental degradation. This transmits a signal to
CO2t-1 − 6.303*** 0.00 the market to use non-renewables in place of renewables due to their low
Short-run findings (section-B) cost. As a result, renewable energy consumption witnesses a decline.
− 0.455*** 0.00
ΔRENt-1
In addition, section-C highlights the findings from the Fourier terms.
ΔCPUt − 0.011* 0.07
ΔCO2t − 2.874*** 0.00
As can be seen, the coefficients on μ1 and μ2 are insignificant, revealing
ΔIPIt 0.098 0.35 that sharp and smooth structural breaks do not affect REN. Finally,
ΔOILt 0.026*** 0.00 section-D yields diagnostic tests. The value of adjusted R-squared ex­
Fourier terms (section-C) plains that about 46% variation in REN is being explained by the
0.004 0.40
considered independent variables (i.e., IPI, OIL, CO2, and CPU). Next,
μ1
μ2 0.004 0.32
the Ramsey RESET set concludes that the model is correctly specified,
Diagnostics (section-D)
whereas the LM test highlights that serial correlation does not exist. The
Test Statistic findings from CUSUM and CUSUM-square test reveal that the estimated
Adjusted-R 2
0.46 model is stable, while the ARCH test notes that there do not exist any
Ramsey RESET test (0.31) heteroskedasticity issues. Finally, the error correction term (ECT) ex­
LM test (0.19) pounds that a shock in the long-run equilibrium will abolish about 45%
CUSUM Stable
every month.
CUSUM2 Stable
Jarque-Bera (0.16)
ARCH (0.21) 4.4. Sensitivity analysis
ECT − 0.45***

Note: Although the Fourier augmented ARDL (2, 2, 0, 0, 2) model has been
chosen, we just report the coefficients at the current time. In section-D, (.) is p-
value.
*p < 0.10; **p < 0.05; ***p < 0.01.
extended in 2013. This created a temporary slowdown in new wind
energy installations as developers and investors waited for clarity on the
future of the tax credit. This uncertainty impacted the growth of the
wind energy industry, decreasing the rate of renewable energy con­
sumption in the US. This finding is somehow backed by the conclusion of
[12] who report that CPU discourages REN in the medium run. How­
ever, our key findings are contrary to the study of [13]; who note that
CPU does not impact REN.
Next, IPI highlights that industrial production does not affect REN.
This outcome is consistent with the study of [32] who report that IPI
does not affect geothermal and solar energy consumption in the US. The
proportion of non-renewables in industrial production is far greater than
its counterpart (i.e., renewable energy) which might be the possible
reason for the insignificant coefficient of IPI [28]. The coefficient on OIL
is positive, representing that an upsurge in oil prices escalates REN. The
increase in oil prices makes non-renewable energy relatively more
costly. As a result, individuals plunge the consumption of non-renewable
energy and eventually enhance REN. These findings receive support
from Ref. [45]. Finally, the coefficient of CO2 is negative, implying that
carbon emissions discourage REN.
Next, section-B depicts the short-run findings. It is worth noting that
all short-run coefficients are statistically significant, except IPI. Next, the
lag of REN indicates the presence of some persistence. These findings are
To complement the baseline results from the FA-ARDL approach, this
part of the analysis performs two types of sensitivity. First, it uses per
capita REN (REN2) as a dependent variable, instead of total renewable
energy consumption. Second, it introduces the consumer price index
(CPI) instead of oil prices to investigate whether other selections of in­
dependent variables alter the key findings.
The findings from the FA-ARDL approach, using REN2 as a depen­
dent variable, are reported in Table 6. In the long run, the coefficients on
CPU and CO2 have a negative sign, expounding that CO2 and CPU posit
detrimental impacts on renewable energy per capita. Nonetheless, the
coefficient of OIL is positive, implying that oil prices upsurge renewable
energy per capita. Finally, the coefficient of IPI is statistically insignif­
icant. This explains that industrial production does not explain per
capita renewable energy.
In the short run, both CPU and CO2 are negative, explaining that
climate policy uncertainty and emissions impede renewable energy
consumption per capita. In contrast, IPI is insignificant, presenting that
industrial production does not alter the per capita renewable energy
consumption in the short run. However, OIL has a positive sign,
reporting that higher oil prices encourage REN2.
Next, in the second approach of sensitivity analysis, we use the
consumer price index (CPI) instead of oil prices to explore whether the
key findings are sensitive to the choice of the variables. In the current
literature, several studies employ the CPI as a key driver of REN [52].
Table 7 yields the short- and long-run findings extracted through the
FA-ARDL model, using the CPI and other selected variables (i.e., CPU,
IPI, and CO2) as control variables.
As delineated in Table 7, in the long run, CPU is negative. This ex­
pounds that an upsurge in uncertainty related to climate policy impedes

7
Q.R. Syed et al. Energy 275 (2023) 127383

Table 6 REN. Regarding the results related to control variables, the coefficient of
Short- and long-run results using REN2. CO2 and CPI is negative and positive, respectively. This indicates that
Dependent variable: REN2 CO2 plunges the REN while CPI escalates it. Next, IPI is insignificant,
yielding that industrial production does not explain the REN. In the
Variable Coefficient p-value
short-run, the CPU is also significant and contains a negative sign, noting
Long-run results (section-A) that the CPU mitigates REN. Next, CO2 and CPI are negative. So, we can
CPUt-1 − 0.014* 0.06
IPIt-1 0.124 0.35
conclude that CPI and CO2 emissions mitigate REN. Finally, IPI is found
OILt-1 0.033*** 0.00 to be insignificant, concluding that IPI does not explain REN.
CO2t-1 − 3.612*** 0.00 The key findings from both parts of the sensitivity analysis revealed
Short-run results (section-B) that CPU hurts REN in both the short and long run. Thus, the findings are
− 0.455*** 0.00
ΔREN2t-1
robust, i.e., the choice of dependent and independent variables does not
ΔCPUt − 0.006* 0.07
ΔCO2t − 0.164*** 0.00 change the baseline findings.
ΔIPIt 0.056 0.34
ΔOILt 0.015*** 0.00 5. Conclusion and policy implication
Fourier terms (section-C)
μ1 0.002 0.41
μ1 0.002 0.31
This study reinvestigated the impact of CPU on REN using a monthly
time series dataset for the US. To evaluate the presence of unit root in the
Diagnostics (section-D)
dataset, the analysis adopted certain unit root tests, including the GLS
Test Statistic test, the [49] test, and the novel SOR test. Using augmented ARDL
Adjusted-R 2
0.46 bounds test, it validated that there was a comovement between CPU and
Ramsey RESET test (0.22) REN in the long run. The findings from the FA-ARDL approach
LM test (0.14) confirmed that CPU mitigated REN in both the short- and long-run.
CUSUM Stable
However, the detrimental impacts of CPU were relatively profound in
CUSUM2 Stable
Jarque-Bera (0.21) the long run, confirming the dominancy of the negative effect/channel
ARCH (0.23) over the positive effect in the long run. Based on the findings, we
ECT − 0.45*** conclude that CPU impedes EG, R&D, technological advancements, and
Note: *, **, *** denotes level of significance at 1%, 5%, and 10%, respectively. In clean energy investment, thereby REN decreases over time. In addition
section-D, (.) is p-value. Although the FA-ARDL (2, 1, 1, 1, 2) model has been to this, we conclude that IPI does not impact REN, Oil escalates REN, and
chosen, we just report the coefficients at the current time. The calculated values CO2 mitigates REN, suggesting that an increase in oil prices will make
for F-test(1), t-test(1), and F-test(2) are 23.70, − 9.76, and 12.64, respectively. consumers move to renewable energy consumption. The study found
These aforementioned values are larger than the respective critical values, that IPI, which is a proxy for monthly GDP, was insignificant in
inferring that cointegration exists. explaining REN. Given these aforementioned results, a number of policy
recommendations could be deduced. More specifically, the study sug­
gests that policymakers should take measures to shrink CPU, especially
Table 7
in the long run. Climate policies should be well-defined and should be
Short- and long-run estimates using CPI.
implemented for a longer span to control this uncertainty. Moreover, to
Dependent variable: REN offset the adverse impact of CPU (especially when CPU is relatively
Variable Coefficient p-value high), policymakers should provide special incentives for growth in
Long-run results (section-A) renewable energy. For instance, the tariff on imports of renewables
CPUt-1 − 0.025*** 0.00 should be reduced. Also, the R&D expenditure on renewables should be
IPIt-1 0.036 0.21 escalated. Moreover, interest-free loans for renewable energy invest­
CPIt-1 1.364*** 0.00 ment should also be provided. In addition to this, policy­
CO2t-1 − 6.342*** 0.00
Short-run results (section-B)
makers/government officials and researchers should incorporate CPU,
ΔREN2t-1 − 0.431*** 0.00 while modeling and forecasting REN in the US. Since CPU is mainly
ΔCPUt − 0.010*** 0.00 coming from the contrasting climate policies of federal- and state-level
ΔCO2t − 1.194*** 0.00 governments, a similar/homogeneous climate policy should be adop­
0.101 0.11
ted by both types of governments. It has also been noticed that the new
ΔIPIt
ΔCPIt − 0.121 0.21
Fourier terms (section-C) government abolishes the climate policies of the previous government,
μ1 0.001 0.12 and introduces its own (new) climate policy, which in turn generates
μ1 0.002 0.14 high levels of CPU. Therefore, it is favourable to sustain the existing
Diagnostics (section-D) climate policies, and introduce new policies very slowly over time.
As for the beneficiaries of this study, it is worth reporting that this
Test Statistic
study will help policymakers to model renewable energy policies. It will
Adjusted-R2 0.44
also assist climate policymakers to understand the imperativeness of
Ramsey RESET test (0.22)
LM test (0.14) CPU with respect to the renewable energy transition. The study will also
CUSUM Stable guide researchers about the theoretical and empirical linkages between
CUSUM2 Stable CPU and REN. Regarding any future research directions, the impact of
Jarque-Bera (0.13) CPU on (non)renewable energy production can be also explored. Next,
ARCH (0.23)
the impact of CPU on sectoral energy (production) consumption can be
ECT − 0.43***
examined. In addition, the nonlinear and/or asymmetric impact of CPU
Note: *, **, *** denotes level of significance at 1%, 5%, and 10%, respectively. In on energy should also be considered in future studies. Since one of the
section-D, (.) is p-value. Although the FA-ARDL (2, 2, 1, 1, 1) model has been limitations of this study is the unavailability of data on CPU for other
chosen, we just report the coefficients at the current time. The calculated values
countries, researchers can generate a CPU index for other countries as
for F-test(1), t-test(1), and F-test(2) are 22.23, − 9.34, and 10.31, respectively.
well, and link it with various energy and environmental indicators to
Also, these aforementioned values are larger than the respective critical values,
inferring that cointegration exists. recommend policies supportive of sustainable development.

8
Q.R. Syed et al. Energy 275 (2023) 127383

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