|dc.description.abstract||Climate change (CC) was first declared a pressing global issue in 1992 and is currently associated with impacting on fossil fuel (FF) prices. In many ways, the dynamics of CC and international political responses thereof, appear to have affected significantly the supply and demand chains of FF companies. In 1997, the Kyoto Protocol (KP) of the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in an attempt to mitigate global greenhouse gas (GHG) emissions. National and international responses to CC have targeted FF use and as a result have led to reductions in the amount of energy supplied by these sources, in favour of low carbon renewable alternatives such as wind and solar. Concomitantly, this in turn has influenced negatively the revenues of FF-producing countries and in particular, the Kingdom of Saudi Arabia’s (KSA) petroleum sector. In recent times, countries that rely on FF production for economic stability have experienced highs and lows with the pricing of their commodities. Clearly, the changing circumstances of oil rich countries is an important issue for the future development of KSA and as such there is a need for research in this area.
This thesis examines how CC specifically, and ‘greening of the world’ in general, are in fact influencing the production and pricing of FF rich countries. This study aims to derive a better understanding of the relationships between FF prices, environmental policies, and CC which is intimately related to, and caused by, the GHG emissions from the burning of FF around the world. More specifically, this research qualitatively explores the nature of the KSA management and their policies over time given the wider context of CC and its impacts on FF prices. The second part of the research employs a quantitative approach by investigating the dynamic effects of CC and green energy prices − representing the changing nature of FF uptake around the world in response to environmental policy objectives − on FF pricing. This study identifies the relationship between FF prices and CC through the analysis of secondary data. The variable set FF return includes global and KSA oil prices together with global natural gas (NG) and coal prices; whereas the variable set CC comprises a green energy index, global [carbon dioxide (CO2), temperature, and precipitation] and KSA [temperature and precipitation]. The sample spans 1 January 1978–30 June 2016 (Period 3) is divided into two sub-periods, as follows: Period 1 (1 January 1978–28 February 1997) and Period 2 (1 March 1997–30 June 2016).
To determine the effect of CC and the impact of greening our society on stock equity returns of the FF industry, advanced time-series conditional variance approaches are used herein. This research analyses dynamic interdependencies allowing for serial autocorrelation in a vector autoregressive framework. To explore and estimate systemic relationships, the impulse response, variance decompositions and Granger causality tests are applied. In addition, to examine the weight and links between CC-related variables and their influence on the pricing of FF, the canonical correlation analysis (CCA) is employed.
The results suggest that CC is value relevant for FF stock and that stockholders incorporate this information in their index valuation processes. Further, the results indicate similarly that the FF industry is value relevant for the green energy index and could affect the demand for renewable energy. A highly significant relationship is found both between global CO2 emissions and FF returns (Period 2) and between the oil market and global NG (Period 2 and 3). A moderate to low significant relationship between the green energy index and global variables is revealed (CO2 and temperature). Significant canonical correlations were established between FF and CC variable sets and one set of canonical variates. FF returns contributed most heavily to the relationship, whereas the CC variables played a lesser role.
This research suggests that FF investors have become concerned recently about the influences of GHG emissions on CC, perhaps viewing a clean energy future as desirable. The study contributes to the emerging field of environmental finance by providing further insights into the role of environmental information in finance models. In academic and practical terms, the analysis advances the understandings of how financial markets could be prompted to channel more resources towards environmental concerns.||