Environmental reverberations of geopolitical risk and economic policy uncertainty resulting from the Russia-Ukraine conflict: A wavelet based approach for sectoral CO2 emissions

Abstract

After the COVID-19 pandemic, Russia invaded Ukraine in February 2022, and a natural gas crisis between the European Union (EU) and Russia has begun. These events have negatively affected humanity and resulted in economic and environmental consequences. Against this background, this study examines the impact of geopolitical risk (GPR) and economic policy uncertainty (EPU) caused by the Russia-Ukraine conflict, on sectoral carbon dioxide (CO2) emissions. To this end, the study analyzes data from January 1997 to October 2022 by using wavelet transform coherence (WTC) and time-varying wavelet causality test (TVWCT) approaches. The WTC results show that GPR and EPU reduce CO2 emissions in the residential, commercial, industrial, and electricity sectors, while GPR increases CO2 emissions in the transportation sector during the period from January 2019 to October 2022, which includes Russia-Ukraine conflict. The WTC analysis also indicates that the reduction in CO2 emissions provided by the EPU is higher than that of the GPR for several periods. According to the TVWCT, there are causal impacts of the GPR and the EPU on sectoral CO2 emissions, but the timing of the causal impacts differs between the raw and decomposed data. The results suggest that the EPU has a larger impact on reducing sectoral CO2 emissions during the Ukraine-Russia crisis and that production disruptions due to uncertainty have the greatest impact on reducing CO2 emissions in the electric power and transportation sectors.