Relation exploration between clean and fossil energy markets when experiencing climate change uncertainties: substitutes or complements?

During the crucial stage of the energy transition to combat extreme climate change, the paper asks whether clean and fossil energies are substitutes or complements. It analyzes correlations among major clean (wind, solar) and fossil (oil, gas) energy markets from 2015 to 2022, identifies and measures volatility spillovers, and decomposes series into high-, low-frequency and trend components to capture short- and long-term relations. Three climate-intensive periods are selected for event analysis to explore linkages under climate uncertainties. Findings show close interactions between clean energy markets mainly in the long term; although oil-related spillovers are not obvious in the full sample, significant spillovers emerge during selected climate-related periods, suggesting climate issues can trigger oil–others spillovers. As climate uncertainties increase, markets react differently in the short term but exhibit synchronized trends in the long term. The study concludes energies behave as substitutes in the short term and complements in the long run, offering insights for policymakers and investors facing climate-driven market fluctuations.

Jin Chen, Yue Chen, Wei Zhou