From black gold to green: Analyzing the consequences of oil price volatility on oil industry finances and carbon footprint

Abstract

This study examines the effect of oil price shocks (OPS) on the financial affairs of the oil industry and carbon releases. The study analyzes the relationships among changes in oil prices, financial variables such as stock prices, and carbon emissions. The findings indicate that OPS significantly impacts the financial affairs of the oil industry, particularly in the short term. Furthermore, the study shows that OPS impacts carbon releases in the long run, suggesting that a decrease in oil usage could lead to a decrease in carbon releases. The study contributes to the ongoing debate on the connection between energy prices and carbon releases. It provides insights that could inform policymakers and industry stakeholders in their efforts to achieve sustainability and mitigate climate change. The empirical analysis is based on a panel data set that covers 12 countries over the period 2000–2020. We use a vector error correction model (VECM) to measure the prolonged and brief-term connection amid oil prices, financial indicators of the oil industry (i.e., stock prices, dividends, and profits), and carbon emissions. The results indicate that OPS has a significant and adverse impact on the financial affairs of the oil industry, as they lead to lower stock prices, dividends, and profits. Moreover, OPS positively impacts carbon emissions, suggesting that higher oil prices incentivize oil companies to increase production and exploration activities, resulting in higher carbon emissions. These findings have important policy implications, highlighting the need for policymakers to implement measures that encourage the oil industry to transition towards cleaner and sustainable energy sources.