Commonality in systemic risk from green and conventional energy

Abstract

Our study is a novel attempt to examine the sub-industry sectors of conventional energy (i.e., oil & gas, crude production, oil refinery & marketing, and oil equipment and services) and the sub-industry sector of green energy (i.e., renewable energy) to analyse the systemic risk and commonality. The results show that the systemic risk for green energy has decreased since 2006, indicating a shift towards net-zero emissions. Further, we develop a systemic contagion index (SCI) for green and conventional energy. The SCI shows that green energy has lower contagion than conventional energy. However, conventional energy appears to create lower contagion during crises, indicating its herding characteristics and investors' preference for conventional energy during crises. A mild systemic risk commonality between green and conventional energy provides an opportunity to shift towards green energy, thus enhancing the possibility of achieving net-zero emissions. These findings provide guidance to policymakers to build the global green and conventional energy policy to achieve net-zero emissions in 2050.