Exploring the dynamic connectedness among energy transition and its drivers: Understanding the moderating role of global geopolitical risk

Abstract

The recent Sustainable Development Goals (SDG) 2022 progress report shows the presence of a possible policy lacuna at the global level in achieving the objectives of SDG 7. The recent COP26 discourse and the academic literature identify the Energy Transition as the possible mean to achieve this objective. Now, realizing the Energy Transition requires a conducive policy climate within the economies, and this conduciveness comes from the financial, technological, and the broad policy dimensions. The existing policy discourse and academic literature show that the Green Financing, Green Technologies, and the Environmental Policies might be the possible drivers to achieve this Energy Transition. Nevertheless, the exposure of a nation to the Geopolitical Risks arising out of the global connectedness of nations might be a detriment to the energy transition process. Increase in the risk profiles and decline in the attractiveness of the energy transition projects might create a roadblock for the policy drivers of energy transition to exert their potential impacts. The present study aims at developing a policy framework by analyzing the dynamic association between the energy transition and its drivers, while allowing Geopolitical Risk to moderate the association. The study is conducted for January 1, 2016 to October 31, 2022, and has used a battery of advanced econometric methods (Quantile Vector Autoregression, Cross-Quantilogram, Wavelet Quantile Correlation, and Non-Parametric Granger-Causality tests). The results show that Green Financing, Green Technologies, and the Environmental Policies have positive impacts on Energy Transition, while Geopolitical Risk is found to have negative impact. The policy framework is designed in a phase-wise manner, so that the impacts of the Geopolitical Risk can be isolated, and the positive impacts of Energy Transition drivers can be maximized. The policy framework is made by keeping the attainment of SDG 7 in its core.