U.S. Economic Policy Uncertainty, Oil Volatility, and Climate Transition After Trump’s Withdrawal from the Paris Agreement

Abstract

Economic Policy Uncertainty (EPU) captures the unpredictability of government decisions that shape market expectations and investment dynamics. In the energy sector, elevated policy uncertainty amplifies volatility, especially in oil markets where regulatory and geopolitical changes directly influence production, pricing, and trade. Meanwhile, renewable energy markets, represented by indices such as ICLN, respond asymmetrically to policy signals, depending heavily on the consistency of climate commitments and fiscal incentives. This study investigates the multiscale and nonlinear linkages among U.S. EPU, oil market volatility (OVX), and clean energy performance (ICLN). Using a hybrid GARCH–Wavelet–Vine Copula framework with the Maximal Overlap Discrete Wavelet Transform (MODWT), we examine horizon-dependent dependencies across short-, medium-, and long-term frequencies. The proposed model captures both the temporal persistence of volatility and cross-market co-movements driven by policy shocks. Empirical results suggest that surges in U.S. EPU significantly increase oil market volatility and indirectly weaken clean energy stability. Policy reversals, such as the U.S. withdrawal from the Paris Agreement, are found to heighten uncertainty spillovers between oil and renewable markets. The findings highlight that persistent policy uncertainty not only affects investor confidence and portfolio allocation but may also slow the ecological transition by discouraging long-term energy investments.