Renewable energy and portfolio volatility spillover effects of GCC oil exporting countries

Bigerna, Simona and D'Errico, Maria Chiara and Polinori, Paolo and Simshauer, Paul (2022): Renewable energy and portfolio volatility spillover effects of GCC oil exporting countries.

Abstract

Over time, Gulf Cooperation Council (GCC) countries have accumulated large oil portfolio revenues. But the world economy is seeking to reduce greenhouse gas emissions and in turn, its reliance on fossil fuel resources through ongoing investments in renewable energy resources. In this article, we construct oil portfolios for four of the GCC countries (viz. Kuwait, Saudi Arabia, United Arab Emirates, Oman) and focus on their top five importing counterparties. Portfolio returns (quantity and price) have been derived between 2008-2018 with volatility spillovers computed via Diebold and Yilmaz’s dynamic spillover index approach. The spillover analysis shows a consistent reallocation effect amongst spillover directions together with their generalized increases. The structural rigidity of oil demand was confirmed with ‘quantity’ Total Volatility Spillovers being lower than ‘price’ Total Volatility Spillovers. Analysis of net contributors for both kinds of volatility found China to be a “net transferer” in quantity spillovers, and India seemingly absorbing quantity and price shocks. We find economic policy uncertainty and rising renewable market shares significantly affects volatility spillovers in oil export portfolios. Although some degree of heterogeneity exists, greater deployment of renewables in importing nations reduces adverse impacts of oil market fluctuations. This result and broader ‘net-zero’ policy commitments means rising renewable market shares are predictable. For GCC countries, two consequential long run risks arise, viz. loss of revenues and stranded oil reserves, which has its own policy implications.

• Item Type: MPRA Paper
• Commentary on: Bigerna, Simona and D'Errico, Maria Chiara and Polinori, Paolo and Simshauer, Paul (2022): Renewable energy and portfolio volatility spillover effects of GCC oil exporting countries.
• Language: English
• Keywords: Gulf Cooperation Council countries; oil exports; total volatility spillovers; renewables; volatility determinants, energy security
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices

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