Carbon policy for the United States, China and Nigeria: An estimated dynamic stochastic general equilibrium model

Highlights: • The study provides fresh impetus for carbon emission disclosure within the context of uncertain productivity. • It interacts with the components of energy production function with optimal policy rules. • The findings suggest production uncertainty exists in the present energy mix. • The present carbon tax levied on emitters is not a true disclosure of pollution. • Monetary stance can act as a catalyst for minimising carbon through incentives to invest in renewable energy. -- Abstract: In recent years there has been significant interest in the connection between energy policy and carbon-emitting factors, with significant emphasis on fixing policy gaps. This paper explores the impact of energy policy in curbing the effect of carbon emission in the United States, China and Nigeria. It offers an empirical insight into the effect of energy policy on carbon emission disclosure of the selected countries' economies. Since understanding future decisions on energy use is uncertain, the study develops, interacts and simulates a simple model for analysing the nexus between the energy sector and environmental policy within the uncertain business environment. The omission in the majority of available literature is that it is unclear if the precise reduction in carbon emission is consistent with the carbon tax levied on economic agents. At best, the evidence gathered points to a fresh impetus on energy policy to accommodate business cycles, even if carbon emission must be mitigated. This study, therefore, analyses the subjective behaviour of an economic agent in the context of carbon emission and the depreciating quality of life. The empirical evidence is based on the Dynamic Stochastic General Equilibrium (DSGE) model. The paper submits that policy direction towards a carbon-free environment, when properly channelled, would impact positively on decarbonisation. Simulation conducted shows that pollution is highly connected with macroeconomic fluctuation, and environmental policy can only be effective when both variables are considered in the context of the DSGE framework. Thus, the study strongly recommends broader carbon tax reform and a proactive monetary stance to mitigate carbon emission and motivate new renewable energy investors.