Climate Risk, Global Shocks and Ecological Footprint: Direct and Moderating Roles of Climate Policy Uncertainty and COVID-19 on CO ₂ Emissions

Abstract

Global climate goals aim to reduce greenhouse gas emissions, slow down climate change and promote environmental sustainability. This has prompted research into a wide range of factors aimed at increasing knowledge on reducing emissions. However, one key factor that has been neglected is climate risk or climate policy uncertainty (CPU). Another issue that has received less attention is the effect of global shocks. This study investigates the direct and moderating roles of CPU and global shocks, represented by COVID-19, on the carbon footprint of South Africa. Employing a novel CPU index data set, together with macro data from the World Bank, and rigorous econometric techniques including the fully modified ordinary least squares (FMOLS), the study finds that CPU has a reducing effect on carbon emissions. Furthermore, CPU reinforces the positive effects of foreign direct investment (FDI) on carbon emissions but weakens the positive effect of income on carbon emissions. Similarly, COVID-19 reinforces the positive effects of income and FDI. The study recommends a prioritization of production efficiency and environmentally friendly input use to slow down emissions.