Market perspective on climate actions and clean energy transition

This paper investigates the impact of climate actions on the clean energy transition by studying information linkages between clean energy and fossil fuels from the broad market's perspective. Utilizing a rational expectations framework, the study examines ex-ante volatility correlations between clean energy, fossil fuels and the broad market as indicators of market linkages. The findings reveal robust information linkages between these markets, highlighting significant shifts in response to global climate policies. Notably, the linkage between clean energy and the broader market decreased by 27% following the Copenhagen Summit in 2009 and increased by 20% after the Paris Agreement's ratification in 2016. These dynamics underscore the influence of global climate actions on energy market behaviors. The study provides valuable insights into the interconnected nature of energy sectors, emphasizing the role of policy in shaping market responses and the broader energy transition. These findings offer critical implications for investors, policymakers, and stakeholders engaged in navigating the complexities of sustainable energy investments and policymaking.