Environmental Policy Uncertainty
Overview
Environmental policies are inherently uncertain due to the inability to predict if/when policies will be enacted, how the policy will limit or encourage certain behaviors, and how long the policy will remain in effect. To measure the uncertainty created by environmental policies, we construct the Environmental Policy Uncertainty (EnvPU) Index, a newspaper-based measure of environmental policy uncertainty. The index measures the frequency of articles including environmental policy uncertainty keywords relative to all published articles. An index value of 198 in January 2017 means that the number of environmental policy uncertainty articles in January 2017 is 1.98 times the average frequency of such articles from 1985 to 2009. The resulting index provides an indicator for the level of policy uncertainty in any given month. We update this index monthly for relevancy and reliability.
Environmental policy uncertainty will increase when newspapers are talking about passage or relaxation of regulations and policy. Thus, increases in the index may represent periods of heightened policy activity but not necessarily uncertainty. To address this, we also construct an environmental policy index, EnvP. There are several periods (mid 1980s, 2009-2012, 2017-2019) where the environmental policy uncertainty index (EnvPU, blue line) is higher than the environmental policy index (EnvP, orange line). These periods indicate particularly uncertain times for environmental policy since the policy uncertainty rose due to the presence of uncertainty-related keywords.
Methodology
We follow Baker et al. (2016) who developed a newspaper-based approach to measure policy uncertainty. We use Newsbank, a news aggregator, to obtain the frequency of articles in U.S. newspapers that discuss environmental policy uncertainty starting from January 1985. Newsbank covers around 15,000 local, regional, and national U.S. newspapers. Our search criteria capture articles related to uncertainty regarding policy makers, types of environmental policies, timeline, and economic consequences. Baker et al. (2016) identify the keywords, ”economic” or “economy”; “uncertain” or “uncertainty”; and one or more of “Congress”, “deficit”, “Federal Reserve”, “legislation”, “regulation” or “White House,” most relevant to identify articles that discuss economic policy uncertainty. Among all articles reporting on policy uncertainty, keywords specific to the environment identify articles reporting on environmental policy that are then used to construct an index of environmental policy uncertainty. We select the 31 keywords to identify articles that address policy uncertainty and the environment. The table below summarizes the environmental keywords used to search for newspaper articles.
To construct an index, we calculate the proportion of articles containing environmental policy related keywords to the total number of articles published in each month. We normalize all values to the average proportion of environmental policy articles between 1985 and 2009. An Environmental Policy Uncertainty Index value of 200 indicates that the number of environmental policy uncertainty articles is times the average frequency of such articles from 1985 to 2009. The result is a normalized time series beginning in 1985 expressed relative to the 1985-2009 average value.
The Environmental Policy Index (EnvP) is constructed in the same way except for one difference. The newspaper article search explicitly excludes any articles that contain uncertainty keywords. In this way, the Environmental Policy Index captures discussion of environmental policy not related to uncertainty.
Environment related keywords used to construct the EnvPU and EnvP indices
air/water pollution | Clean Air Act, Clean Water Act, pollution controls, environmental restrictions, Environmental Protection Agency |
climate change | greenhouse gas regulation, climate change regulation, energy tax, carbon tax, cap and tax, cap and trade |
non-renewable energy | Energy policy, drilling restrictions, offshore drilling, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, CAFÉ standard, corporate average fuel economy, Trans-Alaska pipeline, Alaska oil pipeline, Keystone pipeline, Pipeline and Hazardous Materials Safety Administration |
renewable energy | Biofuel tax credit, ethanol subsidy, ethanol tax credit, ethanol credit, ethanol tax rebate, ethanol mandate, biofuel producer tax credit |
biodiversity and habitat conservation | Endangered species, wetlands protection |
For more information see Palikhi, H., G. Schaur, and C. Sims. 2024. Environmental policy uncertainty. Journal of the Association of Environmental and Resource Economists .
Data visualization created by Ryan Swartzentruber.