March 3, 2026Open Access

Uncertain policies, unstable markets: How energy regulation shapes financial outcomes

Key Points

Uncertainty in energy policies significantly depresses returns in electricity futures markets under bearish conditions.
The Energy Policy Uncertainty Index uses news-based measures to capture regulatory instability from 1997 to 2022.
Asymmetric effects of regulatory shocks vary depending on the volatility regime in financial markets.
Findings underscore the financial costs of policy instability, suggesting the need for credible energy regulation.

Abstract

This paper develops the Energy Policy Uncertainty Index (ENPUI), a news-based measure of regulatory instability in Spain’s energy sector from 1997 to 2022. By systematically capturing policy reversals, tax reforms, and market interventions, ENPUI traces how regulatory shocks affect financial markets. Applying panel quantile regression to energy firms' equity and electricity futures data, we find asymmetric effects that depend on the volatility regime: uncertainty depresses returns in bearish conditions, especially in electricity futures markets, while amplifying volatility under specific regimes. Results highlight the financial costs of policy instability and provide insights for designing credible, climate-consistent policies that foster investment and support the energy transition.

Uncertain policies, unstable markets: How energy regulation shapes financial outcomes

Key Points

Abstract

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