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Commodity price dynamics in the era of energy transition: Exploring the substitutability of clean energy

Author

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  • Palomba, Giulio
  • Tedeschi, Marco

Abstract

A growing body of literature argues that green transition offers a viable pathway to counteract climate change. This article examines the ongoing environmental paradigm shift by analyzing the relationships between clean and traditional commodity prices. Using a novel framework that integrates cointegration analysis with volatility transmission measures, we highlight how spillovers predominantly flow from renewable energy prices to fossil fuel prices, particularly during turbulent periods after 2020. Based on daily data through December 2024, our estimation results reveal that clean and traditional energy prices share long-term relationships, indicating a substitutability mechanism at work over the long run. These findings are consistent with the decline in fossil fuel use driven by positive shocks to clean energy supply and supportive public policies. From a financial perspective, our results align with growing market sentiment towards Environmental, Social, and Governance (ESG) principles, reflecting an increasing investor preference for green financial products. Robustness checks confirm the validity of these findings.

Suggested Citation

  • Palomba, Giulio & Tedeschi, Marco, 2025. "Commodity price dynamics in the era of energy transition: Exploring the substitutability of clean energy," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 214-236.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:214-236
    DOI: 10.1016/j.eap.2025.08.033
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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