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Tail risks of energy transition metal prices for commodity prices

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  • Reboredo, Juan C.
  • Ugolini, Andrea
  • Ojea-Ferreiro, Javier

Abstract

Energy transition requires huge amounts of critical metals —called energy transition metals (ETMs)— to deploy clean energy technologies. The growing demand for ETMs and uncertainties regarding the path to net-zero emissions could cause ETM price oscillations, with potential effects on the prices of other commodities. We explore whether upward and downward movements in ETM prices have a neutral effect on the level and volatility of energy and non-energy commodity prices. By characterizing the conditional dependence between ETM and commodity prices, we document that, except for natural gas, extreme ETM price changes have a non-neutral effect on commodity prices, although this effect vanishes for non-extreme price movements. The implications of this evidence for investors operating in commodity markets are evaluated in terms of commodity risk-adjusted returns, commodity tail risk, and liquidity needs for trading in commodity futures contracts.

Suggested Citation

  • Reboredo, Juan C. & Ugolini, Andrea & Ojea-Ferreiro, Javier, 2024. "Tail risks of energy transition metal prices for commodity prices," Resources Policy, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:jrpoli:v:93:y:2024:i:c:s0301420724004240
    DOI: 10.1016/j.resourpol.2024.105057
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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