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In light of the energy crisis following the Russian invasion of Ukraine, policymakers postulated to lower fossil fuel consumption. Focusing on Europe, we analyze whether domestic energy consumption was reduced in the past because of increased geopolitical risk (GPR) in fossil fuel supplier countries. For this purpose, we adopt an aggregate GPR measure that combines information on GPR in supplier countries with rich bilateral trade data for oil, natural gas, and coal. We estimate the impact of GPR related to fossil fuel imports utilizing an instrumental variable approach and a growth-energy use model. Our results indicate that during the period 2000–2019, increased GPR in coal supplier countries entailed reductions in both coal and total energy consumption. Moreover, economic growth effects on fossil fuel consumption were partly reduced by risks related to coal and natural gas imports. Similarly, if mediated by a high domestic import dependency or government effectiveness, GPR partly lowered the consumption of coal and natural gas. Regarding the energy transition, we find indications of a partial shift from fossil fuels to renewable energy in response to GPR abroad. That is, concurrent to the partial reduction in fossil fuel consumption, GPR in coal supplier countries increased renewable energy consumption.
Europe's energy crisis:
(2023)
This paper provides first empirical evidence on the effect of geopolitical risks in fossil fuel supplier countries on renewable energy diffusion in fossil fuel importing countries and the mediating roles of rising electricity prices and high import dependence. For this end, aggregate measures of geopolitical risk that countries are exposed to through fossil fuel imports are determined. This is done by combining detailed data on bilateral trade patterns for coal, oil, and natural gas of 37 countries in Europe with that on geopolitical risks in supplier countries. Using an instrumental variable approach, the study reveals that geopolitical risks in supplier countries tended to foster renewable energy diffusion in Europe during the period 1991–2021. The effects are especially pronounced for geopolitical risks related to coal and natural gas imports, while the importance of risks related to particular fossil fuels differed for the build-up of the individual renewable energies, i.e. wind, solar, and biomass. Rising electricity prices and high import dependence, particularly for coal, partially amplified the effects on renewable energy diffusion. Despite the high import dependence, natural gas appears to have played in part a role as a bridging technology for energy transition.
In this paper, a dependence-switching copula model is used for the first time to analyse the dependence structure between sectoral equity markets and crude oil prices for India, one of the largest oil importing countries. Specifically, we investigate the dependence and tail dependence for four distinctive states of the market, i.e. rising oil prices—rising equity markets, declining oil prices—declining equity markets, rising oil prices—declining equity markets, and declining oil prices—rising equity markets. Our results reveal that the tail dependence is symmetric (asymmetric) in positive (negative) correlation regimes. Based on the copula results, we estimate the systemic crude oil price risk to different sectors using CoVaR and delta CoVaR. A fleeting positive sectoral CoVaR and delta CoVaR across all sectors implies a time-varying oil price systemic risk. Yet, little difference between CoVaR and VaR across the sectors reveals that a bearish oil market does not add additional systemic risk to a bearish sectoral equity market. The carbon sector is found to be the safe haven investment when both the equity and the oil markets are in a downward phase.
Using province-level data for South Korea, we analyze the dynamic relationship between economic growth and several energy parameters. Specifically, we decompose the growth effect into scale, composition, and technique effects, and control for regional spillovers through the use of a dynamic GMM estimator for spatial panel data models. The analyzed period, ranging from 2000 to 2017, allows us to look for changes in the regional growth effects following the implementation of the National Strategy for Green Growth in 2009. Our estimates show that the scale and composition effect tended to increase both per capita final energy use and energy intensity, outweighing reductions through the technique effect. In contrast, when considering renewable energy production, the scale and technique effect increased and the composition effect decreased the corresponding figures. Thereby, the technique effect was the main driver of increases in renewable energy production. Despite the larger, yet comparatively small share of renewables in Korea’s energy mix, no considerable change of the growth effects can be observed since 2009. Therefore, to reduce the risks for the economy and achieve the political objectives of the green growth strategy throughout the whole country and in a timely manner, a stronger commitment seems to be required.
Which renewable energy (RE) policy instrument is most effective in expanding the international diffusion of RE and what is the role of innovation? We consider rich policy and patent data for 189 countries and territories to investigate these diversely debated questions for wind and solar photovoltaic capacities. This allows us, firstly, to contribute to the limited evidence on the effect of RE innovation on RE diffusion and its interrelated influence with RE support policies. Secondly, we can evaluate the disentangled individual policies' effectiveness in a broad instrument-country context. Thirdly, we control for the inherent endogeneity of policy instruments and innovation. We find that RE innovation, which appears to be largely policy-induced, is among the most promising ways to increase RE capacities. The most effective policy instruments tend to be quotas with certificate trading, tendering, and fiscal instruments that provide specific investment support, i.e. investment tax credits and capital subsidies. Less tangible and projectable measures, such as the most commonly implemented sales-related tax reductions and RE targets, are least effective. While interactions between instruments influence the composition of a well-designed policy mix, there are also differences in the policies' effectiveness and role of innovation depending on the countries' level of development.
We examine the energy-food nexus using the dependence-switching copula model. Specifically, we look at the dependence for four distinct market states, such as, increasing oil–increasing commodity, declining oil–declining commodity, increasing oil–declining commodity, as well as declining oil–increasing commodity markets. Our results support the argument that the crash of oil markets and agricultural commodities happen at the same time, especially during crisis period. However, the same is not true during times of normal economic conditions, implying that investors cannot make excess profits in both agricultural and oil markets at once. Furthermore, our analysis suggests that the return chasing effect dominates for all commodities on maximum occasions. The CoVaR and ΔCoVaR results indicate important risk spillover from oil to agricultural markets, especially around the financial crisis.
Any signs of green growth?
(2021)
Focusing on air emissions in South Korean provinces, we investigate whether economic growth has become greener since the implementation of the national green growth strategy in 2009. Given the relevance of regional elements in the economic and environmental policies, the focus lies on spatial aspects. That is, spillovers from nearby provinces are controlled for in a SLX model by means of the Han–Phillips estimator for dynamic panel data. Our results suggest mainly the existence of inverted N-shaped Environmental Kuznets curves for sulfur oxides (SOX) and total suspended particles (TSP). As the curves initially decrease strongly with increasing income, the main cleanup is achieved with the mean income level. However, abatement of the remaining TSP emissions only takes place at higher income levels. While the fixed effects estimations indicate that per capita SOX and TSP emissions have been significantly lower since 2009, the effects vanish once spatial interactions are taken into account and no evidence is found that regional economic growth has become greener. Apart from economic growth, population density and energy consumption are the main drivers of emission changes, with the latter having robust spatial spillovers. The respective spatial interactions decrease with increasing distance and become insignificant after 150 km.
In the context of the 4th industrial revolution, artificial intelligence (AI) and environmental challenges, this study investigates the role of AI, robotics stocks and green bonds in portfolio diversification. Using daily data from 2017 to 2020, we employ tail dependence as copulas and the Generalized Forecast Error Variance Decomposition to examine the volatility connectedness. Our results suggest that, first, portfolios consisting of these assets exhibit heavy-tail dependence which implies that in the times of economic turbulence, there will be a high probability of large joint losses. Second, volatility transmission is higher in the short term, implying that short-term shocks can cause higher volatility in the assets, but in the long run, volatility transmission decreases. Third, Bitcoin and gold are vital assets for hedging, though the Bitcoin is also affected by its past volatility, a feature it shares with green bonds and NASDAQ AI. During economic downturns, gold may act as a safe haven, as its shock transmission to NASDAQ AI is just around 1.41%. Lastly, the total volatility transmission of all financial assets is considerably high, suggesting that the portfolio has an inherent self-transmitting risk which requires careful diversification. The NASDAQ AI and general equity indexes are not good hedging instruments for each other.
We examine how different renewable energy support policies affect innovation in solar and wind power technologies. The analysis uses policy and patent data for a large sample of 194 countries and territories. The policy data enables distinguishing between two dimensions of regulation, i.e. design and intensity, and their effects on innovation. The patent data is based on the new Y02E system and covers the period 1990 to 2016, with the more recent years revealing both strong increases and declines in patenting activity. The results show that, firstly, more comprehensive portfolios of renewable energy support policies increase patenting in solar- and wind-power-related technologies. Secondly, this inducement effect is strongest for public RD&D programs, targets, and fiscal incentives. In contrast to previous studies, this paper finds a consistently positive impact of feed-in tariffs and does not detect technology-specific differences in the effectiveness of this policy instrument. Thirdly, the positive effect on patenting activity increases significantly over time, with an increase in duration of the implemented RD&D programs and targets.
We analyze the growth-energy use nexus for South Korea, considering province-level consumption data for both total energy use and the five main energy carriers from 2002 to 2017. Given the importance in the country's environmental initiatives and lack of Korea-specific empirical evidence, our focus lies on the role of technological change in reducing the corresponding energy intensities and related changes induced by the National Strategy for Green Growth launched in 2009. While we decompose the growth effect into technique and composition effects and treat income as endogenous, three additional indicators are used to measure innovation activity. We find that not only the income-induced technique effect, but also trade openness, government environmental expenditures, and in part innovation, reduce the total energy intensity. Interestingly, the effects of innovation and government expenditures have been significantly stronger since 2009, whereas the total energy intensity has not improved during the same period. At the energy carrier level, the importance of the drivers is heterogeneous. The technique effect reduces the oil and electricity consumption intensity in particular, and increases the renewables consumption intensity. Reductions in the coal consumption intensity are driven by increases in government expenditures, innovation activity, and trade openness. Decreasing the natural gas consumption intensity appears difficult to achieve.