Sixteenth International Conference on Climate Change: Impacts & Responses

Abstract

The main purpose of this study is threefold. Firstly, it conducts an event study methodology to assess the responses of renewable (hydro, solar and wind) energy sectors to geopolitical risks. Secondly, a multifractal fluctuation analysis is used to test the efficiency of these industries in stressful times. It accounts for irregularities that may be embedded in the renewable energy industries’ behaviors. Thirdly, a wavelet coherence is employed to investigate the role played by global environmental governance (GEG) in crisis periods and under different time-horizons. Our findings reveal that rising geopolitical risks has led to an increase in the systematic risk for the three renewable energy sectors. In addition, significant changes in the properties of hydro, wind and solar are observed at various scales of time, highlighting their multifractal behaviors. Solar and wind energies become less efficient in the downward periods. Medium-to-high comovements across the GEG each renewable energy (with the exception of wind) as the warmer colors dominate all significant regions. The implication is that the pricing and returns generating process existing in hydro and solar power are heavily driven by global environmental governance. The inefficiency of solar power in crisis periods despite its strong connection with the GEG may be attributed to the fact that the environmental policies and the associated actions can generate significant uncertainties, leading to a new source of risk that can affect investment decisions and the performance of renewable industries.