Climate policy uncertainty and gas markets in transition

AbstractThis paper studies how climate policy uncertainty (CPU) and CO₂ emissions shape returns in gas-related financial markets. We combine quantile-on-quantile regression with wavelet quantile and rolling-window wavelet quantile correlation to capture nonlinearities, tail dependence, and horizon-specific effects. The results reveal pronounced asymmetries and strong regime dependence. CPU does not exert a uniform directional effect; instead, it amplifies dispersion and tail sensitivity, particularly under extreme market conditions.CO₂ tend to depress the NYSE Arca Natural Gas Index and London Gas Oil futures, but can support the S&P 500 Energy Index under specific market states, consistent with heterogeneous transition expectations. Crisis episodes intensify time-frequency linkages and can flip correlation signs at medium and long horizons.Overall, the results indicate that elevated CPU amplifies risk-premium adjustments in a state-dependent manner, strengthening regime sensitivity in gas-related financial markets.