As we progress through the new millennium, our planet faces an unprecedented environmental crisis. The Earth's climate system is undergoing rapid changes, with far-reaching consequences for all forms of life. Recent studies indicate a significant rise in global temperatures since the pre-industrial era [21,44]. Projections suggest a potential temperature increase of approximately 5 °C by 2100 if current trajectories persist [77]. This accelerated warming trend is not merely a matter of rising thermometer readings; it is reshaping the very fabric of our world. From food production to power generation, economic systems to societal structures, and from public health to geopolitics, no aspect of human existence remains untouched by this phenomenon [13,38,85]. The burden of this crisis, however, is not shouldered equally across the globe [97]. Economically disadvantaged countries, with limited access to cutting-edge technology and financial resources, bear the brunt of extreme weather events, often resulting in devastating economic setbacks [34,52]. Conversely, affluent countries situated in cooler regions are experiencing more rapid temperature increases, leading to substantial financial losses due to climate-related calamities [34]. One stark example is the European continent, which has incurred significant economic damages due to climate disasters, with losses estimated between 450 and 520 billion euros between 1980 and 2020 [37]. In response to this looming threat, countries worldwide have begun implementing various strategies at multiple levels of society. The Paris Agreement of 2015 established ambitious objectives to constrain global temperature rise to significantly below 2 °C above pre-industrial levels, with aspirations to limit this increase to 1.5 °C. The Intergovernmental Panel on Climate Change (IPCC) posits that achieving these targets necessitates a 45 % reduction in global greenhouse gas emissions by 2030 and the attainment of net-zero emissions by 2050 [63]. Yet, recent global events, such as armed conflicts in Eastern Europe, have introduced new layers of complexity to both climate-related and economic uncertainties. The resulting ambiguity in environmental policies, marked by a lack of clarity and consistency in governmental approaches to climate change (CC) mitigation and the shift towards sustainable energy sources, presents additional hurdles [43]. Given this context, understanding the magnitude and pathways of climate impacts on economic variables has become increasingly crucial for academics and policymakers alike [18,62,64].

Exogenous perturbations in economic systems may prompt governments to modify their policy stances, leading to biases in individuals' expectations regarding these policies. These biases, in turn, influence decision-making processes, culminating in what is termed economic policy uncertainty (EPU) [15]. In recent epochs, a combination of global shifts—including financial instability, migration crises, labor market imbalances, wealth inequality, demographic changes, and oil price fluctuations—has significantly increased the level of uncertainty in economic policy [39,74,90]. Empirical evidence indicates that elevated levels of EPU have a significant impact on macroeconomic variables, primarily by discouraging investment and consumption, which in turn slows economic growth and increases unemployment [56,95]. Moreover, EPU can also increase volatility in housing prices, potentially destabilizing real estate markets. Additionally, it may impact commodity markets through its influence on oil inventories and pricing mechanisms [12,59].

Given these far-reaching implications, it is imperative to elucidate the determinants of EPU. Climate change emerges as a significant factor in this context, exerting influence on diverse economic variables such as agricultural yields, public health outcomes, consumer spending patterns, and operational expenses. This, in turn, engenders macroeconomic instability [1,30]. In response to climate-related risks, governments frequently formulate and recalibrate economic policies aimed at ameliorating adverse impacts on the real economy. However, this adaptive process inadvertently amplify EPU [11,92]. This phenomenon is particularly pronounced in emerging economies, such as those of the Gulf Cooperation Council (GCC) countries - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates -. In these developing countries, climate change has the potential to significantly amplify EPU. It achieves this by disrupting established economic patterns and introducing considerable unpredictability into various sectors of economic activity.

Understanding the climate-EPU relationship requires recognition of its inherently asymmetric nature, which manifests through multiple dimensions of heterogeneity. The asymmetric impact of climate change on economic policy uncertainty encompasses three distinct but interconnected forms of asymmetry that this study systematically examines. First, distributional asymmetry refers to the differential effects of climate change across varying levels of economic policy uncertainty. This form of asymmetry recognizes that climate impacts do not uniformly affect all uncertainty scenarios; rather, extreme climate conditions may disproportionately amplify high-uncertainty states compared to low-uncertainty conditions. Second, temporal asymmetry captures the divergent patterns of climate-EPU relationships across different time horizons. This dimension acknowledges that immediate policy responses to climate shocks may differ substantially from long-term structural adjustments, creating distinct short-term volatility patterns versus chronic uncertainty trajectories. Third, country-specific asymmetry reflects the heterogeneous responses across nations based on their unique economic structures, institutional capacities, and climate vulnerabilities. This form of asymmetry recognizes that countries with different economic foundations, policy frameworks, and environmental exposures will exhibit varying degrees of sensitivity to climate-induced policy uncertainty. The comprehensive examination of these three asymmetric dimensions provides a nuanced understanding of how climate change creates differential impacts on economic policy uncertainty, moving beyond traditional linear assumptions to capture the complex, nonlinear relationships that characterize climate-economy interactions.

The academic literature on EPU has evolved along two distinct paths. The first examines how EPU shapes both macroeconomic and microeconomic outcomes [46,65,94]. The second investigates the multifaceted factors that shape EPU itself [74,78].While this dual approach has enriched our understanding of EPU, there remains a notable gap in understanding how climate change specifically affects EPU in GCC countries. The juxtaposition of Fig. 1, Fig. 2 reveals intriguing patterns that motivate our research. The warming trends shown in Fig. 2, particularly the acceleration after 1990, coincide with periods of heightened EPU volatility illustrated in Fig. 1. This temporal alignment suggests a potential relationship between rising temperatures and economic policy uncertainty, particularly during periods of extreme climate events or sustained temperature increases. This study aims to address this gap by analyzing the CC-EPU relationship in the GCC context. GCC economies are particularly vulnerable to environmental changes due to their geographical location and economic structures, which are heavily reliant on hydrocarbon exports. The rising temperature trends demonstrated in Fig. 2, combined with the volatile EPU patterns shown in Fig. 1, underscore the critical need to understand how climate change asymmetrically affects economic policy uncertainty in these strategically important economies.

Based on these discussions, the main value added of this paper can be generalized in the following aspects:

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  First, this study represents a pioneering contribution to the literature by examining the asymmetric relationship between climate change and EPU. While previous research has extensively explored climate change impacts on traditional economic indicators such as GDP growth, inflation, and employment, this investigation addresses a significant gap by focusing on policy uncertainty as a critical yet underexplored outcome variable. The research significance lies in its recognition that climate shocks create complex challenges for policymakers, potentially leading to increased uncertainty in economic policy formulation and implementation. This relationship is particularly relevant given the growing frequency and intensity of extreme weather events, which can disrupt economic activities and complicate policy responses. By establishing empirical evidence for the climate-EPU nexus, this study provides valuable insights for understanding how environmental risks translate into economic policy challenges. The cross-country comparative approach enhances the robustness of findings while offering practical guidance for policymakers seeking to navigate the intricate relationship between climate variability and economic stability. This contribution is essential for developing more resilient economic policies in an era of increasing climate uncertainty.
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  Second, the study's methodological innovation lies in its integration of two sophisticated quantile-based analytical techniques, creating a comprehensive framework for examining complex economic relationships. The Multivariate Quantile-on-Quantile Regression (M-QQR) technique enables the examination of how different intensities of climate change influence varying levels of economic policy uncertainty across the entire distribution. Unlike conventional regression methods that focus on average effects, M-QQR captures the heterogeneous impacts across different quantiles, revealing whether extreme climate events disproportionately affect high-uncertainty scenarios compared to low-uncertainty conditions. This distributional analysis provides nuanced insights that traditional linear models cannot capture, offering a more complete understanding of the climate-EPU relationship. Complementing this approach, the Wavelet Quantile Regression (W-QR) method introduces a temporal dimension to the analysis, decomposing the climate-EPU relationship across multiple time horizons. W-QR distinguishes between immediate policy responses to climate shocks and long-term structural adjustments, providing insights into both short-term volatility and chronic uncertainty patterns. This temporal decomposition is crucial for understanding how climate impacts evolve over different time scales, enabling more targeted policy interventions. The combination of M-QQR and W-QR creates a comprehensive analytical framework that addresses both distributional heterogeneity and temporal dynamics. This dual approach provides a more complete picture of the climate-EPU relationship, capturing both the intensity of effects across different scenarios and their evolution over time. This methodological innovation establishes a replicable framework that can be applied to other complex economic relationships.
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  Third, the research delivers substantial practical value through its policy-relevant insights, bridging the gap between academic research and real-world decision-making. By quantifying the relationship between climate variability and economic policy uncertainty, the study provides policymakers with empirical evidence to anticipate and prepare for climate-induced economic disruptions. This evidence base is particularly valuable for developing proactive rather than reactive policy responses, enabling more effective crisis management and economic stabilization efforts. The findings facilitate the design of adaptive economic strategies that address both environmental and economic risks simultaneously. Understanding how climate change amplifies policy uncertainty enables the development of diversification strategies, infrastructure investments, and institutional reforms that enhance overall economic resilience. This practical relevance makes the research directly applicable to policy planning processes and strategic decision-making frameworks.
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  Fourth, the study's focus on Gulf Cooperation Council (GCC) countries provides valuable insights into a region with unique environmental and economic characteristics. The GCC region's combination of arid climate conditions and hydrocarbon-dependent economies creates a compelling case study for climate-economy interactions. The region faces intensifying climate risks including rising temperatures and water scarcity, while simultaneously pursuing economic diversification initiatives that introduce additional policy complexities. This context makes the region particularly suitable for examining climate-EPU relationships. The cross-country examination within the GCC framework accounts for variations in economic structures, policy priorities, and climate vulnerabilities across member states. This granular approach ensures that findings are relevant to individual country contexts while maintaining regional coherence. The analysis supports country-specific policy recommendations while contributing to broader understanding of climate-economy interactions in resource-dependent economies. The research directly supports ongoing regional initiatives such as Saudi Vision 2030 and similar diversification programs across GCC countries. By providing evidence on how climate factors influence policy uncertainty, the study informs strategic planning processes and supports the development of climate-resilient economic policies tailored to regional conditions.

The paper proceeds as follows. Section 2 reviews and synthesizes the literature on climate change and economic policy uncertainty. Section 3 describes our research design and methodology, and presents the empirical results alongside robustness checks. Section 4 interprets and discusses these findings. Finally, Section 5 concludes by highlighting the study’s key insights.

The theoretical framework explaining the relationship between climate change and EPU is rooted in policy uncertainty theory, as developed by Baker et al. [15], which posits that policy unpredictability significantly affects economic decision-making across businesses, governments, and individuals. This relationship manifests through four key theoretical channels:

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  First, climate change creates direct economic disruptions through physical damage to assets and human capital, affecting production, investment, and consumption patterns. The climate variability caused by phenomena like El Niño1 and La Niña2 impacts food security, supply chains, and energy stability [28,41], compelling governments to implement reactive policies that increase short-term EPU [32]. This dynamic is further shaped by broader institutional factors, where differing priorities and public sentiment influence policy decisions, often favoring immediate economic concerns over environmental objectives [42].
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  Second, global carbon reduction goals necessitate substantial economic policy adjustments, particularly affecting high-emission industries. The implementation of climate change mitigation policies requires significant investments in green technology and renewable energy, creating new dimensions of EPU as countries navigate the complex coordination of these transitions [89]. This process involves intricate trade-offs between immediate economic gains and long-term sustainability goals [10], affecting fiscal and industrial policies [15].
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  Third, behavioral economics principles developed by Tversky & Kahneman [53,86] suggest that under conditions of high climate change and EPU, economic actors exhibit cognitive biases such as loss aversion and status quo bias. These behavioral patterns can impede necessary adaptations in energy use, consumer behavior, and sustainable technology investment, potentially weakening global cooperation on climate change mitigation as domestic economic issues take precedence over international environmental commitments [10].
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  Fourth, the transition risks associated with climate change create uneven impacts across industries, particularly affecting sectors dependent on high energy and resources use. The emergence of stranded assets, increased operational costs, and labor market disruptions presents significant challenges for policymakers [75]. This is especially pronounced in economies reliant on resource-intensive industries, where the development of new economic drivers often lags behind policy expectations [61], creating additional EPU as governments attempt to balance employment, economic growth, and carbon emission reduction goals [96].

This theoretical framework, building on Bloom's [26] work, emphasizes that the relationship between climate change and EPU creates a complex feedback loop, where environmental imperatives and economic stability concerns continuously interact, requiring innovative policy approaches that can effectively address both climate risks and economic uncertainty while supporting sustainable transitions.

From a quantile perspective, Kuwait, Saudi Arabia, and the UAE benefit from economic stability at lower temperature quantiles, indicating that their policy frameworks can effectively manage normal temperature variations. This resilience is consistent with Dell et al. [35] and Hsiang and Jina [48], who show that countries with stronger institutional structures tend to handle moderate climate impacts more effectively. However, as temperatures rise to higher quantiles, the results reveal increased EPU across all GCC countries. This vulnerability aligns with Nordhaus [66] and Deryugina [36], which detail how higher temperatures can destabilize even well-prepared economies, a finding further corroborated by Burke et al. [29] who emphasize the challenges of managing extreme weather events, particularly in already hot regions. This is also aligning with Weitzman [93] on the concept of “tail risks” in climate change, where extreme events create heightened economic instability. The GCC region’s vulnerability to these tail risks is underscored by Pal and Eltahir’s [72] research, which suggests that parts of the region could become uninhabitable by 2100 if extreme climate events intensify. However, important heterogeneity emerges across individual countries, reflecting their distinct economic structures and policy approaches. Kuwait demonstrates remarkable resilience at lower temperature quantiles, likely attributable to its substantial sovereign wealth fund and diversified investment portfolio, which provides a buffer against climate-induced uncertainty. Saudi Arabia exhibits similar patterns, benefiting from its Vision 2030 diversification strategy and massive infrastructure investments in renewable energy projects like NEOM, which may enhance confidence in the country's long-term climate adaptation capabilities. The UAE's response pattern reflects its advanced economic diversification, with Dubai's service-oriented economy and Abu Dhabi's strategic investments in renewable energy creating institutional resilience. The country's early adoption of green finance initiatives and its hosting of COP28 demonstrate proactive climate policy engagement, potentially explaining its relative stability at moderate temperature levels.

Qatar and Oman present distinctly different patterns that deviate from regional trends, warranting closer examination. Qatar's three-phase pattern—where moderate temperatures offer stability, but extreme conditions increase EPU—reflects the country's unique economic structure. As a small, gas-rich nation with limited economic diversification despite recent efforts, Qatar's economy remains vulnerable to extreme climate events that could disrupt its energy infrastructure and threaten its comparative advantage in LNG exports. The country's heavy reliance on desalination and air conditioning makes it particularly sensitive to temperature extremes, as highlighted by Kahn et al. [52] in their analysis of adaptation costs in hot climates. This supports Tol [84]'s findings on diversification as a climate resilience factor, suggesting that Qatar's concentrated economic base amplifies uncertainty under extreme conditions. Oman's response pattern is particularly intriguing, showing relative stability under low to moderate temperatures but facing distinct challenges under extreme conditions. This pattern reflects Oman's early and sustained diversification efforts, including its development of manufacturing, tourism, and logistics sectors, which have reduced its dependence on oil revenues compared to other GCC states. The country's Oman Vision 2040 emphasizes sustainable development and climate resilience, potentially explaining its superior performance at moderate temperature levels. However, Oman's geographic exposure to cyclones and its limited fiscal resources compared to wealthier GCC neighbors may explain its vulnerability to extreme temperature events, as these could strain its adaptation capacity and fiscal buffers. These country-specific patterns highlight the critical importance of economic diversification, institutional quality, and fiscal capacity in determining climate resilience. While the GCC region shares common vulnerabilities due to its hot climate and energy-dependent economies, the heterogeneous responses underscore that one-size-fits-all policy recommendations may be inappropriate. Countries with greater diversification and stronger institutions demonstrate enhanced resilience, while those with concentrated economic structures face amplified uncertainty under extreme conditions.

The temporal analysis (W-QR) reveals a clear divergence among GCC countries. In the short term, Kuwait and Saudi Arabia experience a stabilizing effect from moderate temperatures, likely benefiting from sustained oil revenues. However, as the time horizon extends, CC begins to positively influence EPU, signaling heightened uncertainty. This rapid, time-sensitive response is in line with findings by de Brauw et al. [33] on immediate climate impacts and Batten et al. [16], who explore how energy-dependent economies respond quickly to climate shocks. This immediate response also underscores the specific vulnerabilities of oil-heavy economies that are acutely sensitive to both physical climate risks and global energy shifts. In contrast, Oman, Qatar, and the UAE show a gradual increase in EPU over the medium to long term. This delayed response aligns with Su et al. [82] and Stern [80]’s insights on the cumulative impact of climate change, where gradual risks accrue, impacting policies over time. The concept of “tragedy of the horizon” introduced by Carney [31] is particularly relevant here, as climate risks that seem minimal in the short term may create substantial long-term challenges. For the UAE and Qatar, whose economies are more diversified, medium- to long-term climate impacts signify potential adaptation needs, especially as these countries balance sustainability with continued growth.

The distinct responses across quantiles and time horizons have significant policy implications, particularly for economies heavily reliant on fossil fuels. The need for immediate policy responses in oil-dependent countries like Kuwait and Saudi Arabia corresponds to Sanfilippo et al. [76] and IRENA [51] analysis of the energy transition challenges faced by petroleum-exporting countries. As EPU rises over the medium and long term in diversified economies like the UAE and Qatar, Stern et al. [81] emphasize the importance of structural economic transformation, which would allow these countries to adapt more effectively to sustained climate pressures.

The overall regional vulnerability pattern, especially at higher temperature quantiles, corresponds to the [50] projections for the Middle East, which indicate escalating policy challenges in response to climate change. The IMF [49] has also pointed to the intersection of climate vulnerability and economic transition needs in the GCC, reinforcing that even diversified economies within the region cannot entirely escape the effects of climate change. The temporal differences in climate-EPU relationships, with oil-dependent economies facing immediate impacts and diversified ones showing delayed responses, align with findings from the World Bank [91] that indicate economic diversification as a moderating factor in climate resilience.

This study advances the literature on climate change and economic policy by illustrating the complex, multi-layered nature of the CC-EPU relationship across temperature distributions and time horizons. The findings underscore the need for nuanced, differentiated policy approaches across the GCC, recognizing that each country’s economic structure shapes its specific climate risks. Consistent with Battiston et al. [17] on climate risk management, tailored policy frameworks will be essential, addressing both immediate shocks in oil-heavy economies and the need for long-term structural adjustments in diversified ones. Given the GCC’s position at the intersection of climate vulnerability and energy transition pressures [67], policy frameworks must balance the dual objectives of managing immediate climate shocks and planning for long-term resilience. This includes integrating climate risk into economic policy and actively investing in green technologies, infrastructure, and renewable energy sources. These policies can help the GCC manage increasing climate-related uncertainties while supporting a more sustainable economic transition.

Historically, GCC countries prioritized oil market stability and economic diversification over climate action when addressing global challenges. However, recent years have witnessed a paradigm shift, with climate change mitigation becoming central to the region's economic transformation strategies. This evolution is driven by multiple factors: global energy transition, rising temperatures, regional security concerns, and international pressure for carbon reduction commitments. As GCC countries navigate oil market volatility, regional geopolitical tensions, and the need for economic diversification, they increasingly recognize that climate action and economic stability are complementary rather than competing priorities. This integrated approach is exemplified in initiatives like Saudi Arabia's Vision 2030, UAE's Net Zero 2050 strategic initiative, and Qatar's National Environment and Climate Change Strategy, reflecting a new era where economic resilience and climate adaptation are viewed as interconnected imperatives.

Building on this evolving policy landscape, this study investigates the critical relationship between climate change and economic policy uncertainty in GCC countries from 1980m1 to 2023m12, focusing specifically on how temperature changes influence policy uncertainty in these economies. The research distinguishes itself through its novel application of quantile-based methodologies, offering insights across different temporal periods and distribution quantiles—an approach previously underutilized in climate change and EPU research. The study employs sophisticated statistical frameworks, primarily the M-QQR and W-QR, to capture the inherent nonlinearities in the dataset. To ensure result robustness, the study incorporates M-QR and KRLS estimators as complementary verification tools.

The findings from our analysis paint a nuanced picture of climate change impacts across GCC countries. The M-QQR analysis reveals that Kuwait, Saudi Arabia, and the UAE experience policy stability benefits at lower temperature quantiles, while Qatar and Oman show distinct response patterns. Notably, all GCC countries demonstrate heightened policy uncertainty at higher temperature quantiles, indicating regional vulnerability to extreme temperatures. Our W-QR analysis adds a temporal dimension, showing that Saudi Arabia and Kuwait face immediate climate change impacts on policy uncertainty, reflecting their oil market sensitivities. Meanwhile, Oman, Qatar, and UAE exhibit delayed effects, with positive CC-EPU relationships emerging over medium to long-term periods. Policymakers in oil-dependent economies like Kuwait and Saudi Arabia should prioritize immediate climate adaptation strategies, while diversified economies like the UAE and Qatar need long-term structural reforms to enhance resilience. Investments in green technologies, renewable energy, and climate-resilient infrastructure are essential to mitigate risks and support sustainable transitions. Tailored approaches are crucial to balance short-term vulnerabilities with long-term resilience across GCC countries, aligning with their unique economic structures and climate risks.

Despite these significant contributions, the study acknowledges several limitations that provide avenues for future research.

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  First, the analysis exclusively focuses on GCC economies, which, while providing deep insights into resource-rich, climate-vulnerable nations, limits the generalizability of findings to other economic contexts. Expanding the scope to examine the relationship between EPU and climate factors across diverse economic blocs such as BRICS nations, OECD countries, or other regional groupings like ASEAN would substantially enhance the understanding of these dynamics across different developmental stages, economic structures, and climate vulnerabilities. Such comparative analyses could reveal whether the observed patterns are unique to oil-dependent economies or represent broader global phenomena.
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  Second, the study's reliance on temperature as the primary climate indicator, while justified by data availability and consistency, may not capture the full spectrum of climate-related risks that influence economic policy uncertainty. Future studies could incorporate additional climate metrics including precipitation variability, extreme weather event frequency, drought indices, and composite climate risk measures to provide a more holistic assessment of climate impacts on policy uncertainty.
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  Third, the temporal scope of the analysis, while spanning significant climate and economic events, could be extended to capture longer-term climate cycles and their policy implications. Additionally, the use of the World Uncertainty Index as the sole EPU proxy, though well-established, could be complemented by alternative uncertainty measures such as policy-specific uncertainty indices, market-based uncertainty indicators, or text-based policy uncertainty measures to enhance robustness.
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  Finally, the study's focus on aggregate national-level relationships could be enriched by sector-specific analyses that examine how different economic sectors within GCC countries respond to climate variations in terms of policy uncertainty. This sectoral approach could reveal heterogeneous effects across industries such as energy, agriculture, manufacturing, and services, providing more targeted policy insights.

By addressing these limitations, forthcoming studies could further enrich our knowledge of the intricate interactions between climate change and economic policy uncertainty, contributing valuable insights to this rapidly evolving field and informing more nuanced policy responses to climate-related economic challenges.

Research reported in this publication was supported by the Qatar Research Development and Innovation Council under grant #ARG01-0508-230093. The content is solely the responsibility of the authors and does not necessarily represent the official views of Qatar Research Development and Innovation Council.

Mohamed Sami Ben Ali: Validation, Supervision, Resources, Project administration, Methodology, Investigation, Funding acquisition. Alanoud Al-Maadid: Validation, Supervision, Resources, Project administration, Methodology, Investigation, Funding acquisition. Brahim Bergougui: Writing – original draft, Visualization, Software, Investigation, Formal analysis, Data curation, Conceptualization.