Policy uncertainty erodes 75 percent of cleantech investment gains

Using quarterly data on 41,080 greenfield investments in the United States from 2007Q1 to 2019Q1, researchers Laura Nowzohour and Joëlle Noailly isolate the impact of environmental policy uncertainty.

At the aggregate level, a one-standard-deviation increase in policy uncertainty offsets approximately 75 percent of the positive policy effect on the number of clean technology deals.

At the intensive margin, uncertainty eliminates roughly 50 percent of the policy-induced increase in capital expenditure.

The deterrence effect proves particularly acute for cross-border capital: foreign investors reduce their cleantech deal share by 1.7 percentage points following an uncertainty shock, compared to a 1.1 percentage point drop among domestic firms.

The study develops supervised machine-learning indices from ten major US newspapers to separate policy salience from policy ambiguity.

Statistical validation confirms the uncertainty index is stationary and near-orthogonal to existing climate indicators.

Local projections reveal that the negative effect of uncertainty persists for at least eight quarters, outlasting the positive stimulus of the policy itself.

Greenfield cleantech projects face substantial sunk costs and long planning horizons, which amplifies the real-options value of delaying commitments during political ambiguity.