The volatility of global energy uncertainty: Renewable alternatives

Abstract

Fluctuations in energy markets affect all economic activities by affecting energy prices and investment decisions. This study is the first attempt to investigate the energy-related uncertainty (volatility) in the world using the newly developed energy-related uncertainty index (EUI). The ARCH (autoregressive conditional heteroskedasticity) and GARCH (generalized autoregressive conditional heteroskedasticity) models are applied for this investigation between 1996 and 2021. The ARCH model reveals that global energy uncertainty is highly volatile, with a coefficient of 0.63. As policy implications, fostering the transition process to renewable energy and a green economy is recommended. The rise of renewable energy can reduce energy dependency and uncertainty in energy markets since they are less sensitive to exogenous shocks and fossil fuel price fluctuations. Understanding this uncertainty helps policymakers develop more effective energy policies, increase energy security and a sustainable environment, and maintain economic stability. The proposal to increase renewable energy in this study also aligns with the United Nation's SDG7 (Affordable and Clean Energy), which aims to improve the share of renewable energy by 2030.