Factor proportions model for Russian mineral supply-driven global energy transition: Does externality matter?

Abstract

The Factor Proportions Model posits that international trade is contingent upon the relative abundance of factors of production, namely natural resources, capital, and labor. Countries endowed with mineral resources are inclined to export them to countries with higher demand but lower supply. However, geopolitical events disrupt the smooth transition of mineral-consuming economies towards sustainable renewable energy production. This study aims to investigate the interplay between Russian mineral exports and renewable energy generation, taking into account geopolitical risks, within both the global and Chinese contexts. The study covers monthly data from January 2011 to December 2021. Utilizing the cross-quantilogram approach, this study reveals a positive spillover effect of Russian mineral exports on global and Chinese renewable electricity production, across various time frames, including monthly, quarterly, bi-annual, and annual memories. Additionally, labor force's contribution plays a pivotal role in facilitating renewable energy production for both the global and Chinese contexts. Notably, externality factor, particularly geopolitical risks, exert a detrimental spillover effect on renewable energy generation for both the globe and China, although China's geopolitical risk events appear to be beneficial for its own renewable energy production in bullish and bearish states, across all memories. Russian geopolitical risks evince heterogeneous spillover effects on global renewable energy generation. To bolster the robustness of the findings obtained from the CQ approach, this study employs the partial cross-quantilogram (PCQ) approach. This research recommends the imperative of ensuring a secure supply of critical minerals and expediting the global energy revolution, while effectively mitigating geopolitical hazards, with the overarching goal of achieving a trajectory towards net-zero emissions.