Challenges and Solutions of Green Finance in the Low Oil Price Era

Dear Colleagues,

The global energy market demand, including oil, natural gas, and coal, is declining as the impact of new coronavirus (Covid-19) spreads around the world, with oil demand taking the biggest hit, as oil is mainly used in the transportation sector and therefore directly affected by the business closures, decline in domestic and international travels, and the quarantine measures introduced in various countries across the world.

In 2020, global oil demand is expected to contract for the first time since the global recession of 2009. IEA projected that oil demand in PRC will suffer the most in the first quarter, with a year-on-year fall of 1.8 million barrels per day (mb/d) and with global demand down 2.5 mb/d (IEA, 2020).

Although the exact impact of the Covid-19 pandemic on oil demand depends on how quickly the virus is contained, the protection efforts of governments and nations, and governments’ economic stimulus policies, it seems that the IEA projection is too much optimistic. The situation is much more severe than what the projection of IEA was based on, and the actual decline is expected to be larger. In fact, the Organization for Economic Co-Operation and Development (OECD) predicted that Covid-19 will lower the global GDP by one-half percent point for 2020 (from 2.9 to 2.4 percent).

On the other hand, in the supply side of the oil market, on 5 March 2020, OPEC proposed a 1.5 million barrels per day (mbd) production cut for the second quarter of 2020, of which 1 mbd would be by OPEC countries and 0.5 mbd from non-OPEC but aligned producers (most prominently Russia). The following day, Russia rejected the proposal, and Saudi Arabia also announced unprecedented discounts of almost 20% in key markets. The result was a more than 30% plunge in prices, to as low as $31.1 (WTI crude) per barrel on 9 March. The nightmare in the oil industry keeps worsening. Intensifying recession due to Covid-19 fears drove global oil prices down to $22.63 per barrel (WTI crude) on 18 March.

Low fossil fuel price is harmful for the development of renewable energy projects making solar, wind, and other renewable energy resources less competitive as sources of electricity. In 2017 and 2018, new investments in renewable energy and energy efficiency declined globally by 3% and 1%, respectively (Sachs et al. 2019). The recent plunge in oil prices and the uncertainty caused by the Covid-19 outbreak will shrink new investment into the green sector further. This is endangering the Paris agreement and the “Climate Action” goal of the United Nations. Hence, the government needs to look for new tools to revitalize green finance and investment to keep the renewable energy sector alive.

With this background, this Special Issue aims to collect high-quality, unpublished, empirical case studies or thematic studies that assess the challenges for green financing and investment in renewable energy projects, in the low oil price era. Empirical studies need to be developed based on a well-established theoretical framework. Papers need to be prepared based on the Journal of Risk and Financial Management guidelines for the authors.

Reference:

ADB. 2020. The Economic Impact of the COVID-19 Outbreak on Developing Asia. ADB Briefs No. 128. Manila: Asian Development Bank.

IEA. 2020. Oil 2020. Paris: International Energy Agency.

Sachs, Jeffrey D., Wing Thye Woo, Naoyuki Yoshino, and Farhad Taghizadeh-Hesary, eds. 2019. Importance of Green Finance for Achieving Sustainable Development Goals and Energy Security. In Handbook of Green Finance. Energy Security and Sustainable Development. Tokyo: Springer.

Taghizadeh-Hesarya, Farhad, and Naoyuki Yoshino. 2019. The way to induce private participation in green finance and investment. Finance Research Letters 31: 98−103.

Taghizadeh-Hesarya, Farhad, and Naoyuki Yoshino. 2020. Sustainable Solutions for Green Financing and Investment in Renewable Energy Projects. Energies 13, 788.

Taghizadeh-Hesary, Farhad, Naoyuki Yoshino, Majid Mohammadi Hossein Abadi, and Rosa Farboudmanesh. 2016. The Response of Macro Variables of Emerging and Developed Oil Importers to Oil Price Movements. Journal of the Asia Pacific Economy 21: 91−102.

Taghizadeh-Hesarya, Farhad, Naoyuki Yoshinob, Ehsan Rasoulinezhadc, and Youngho Chang. 2019. Trade linkages and transmission of oil price fluctuations. Energy Policy 133: 110872.

Taghizadeh-Hesary, Farhad, Naoyuki Yoshino, Youngho Chang, and Aladdin D. Rillo, eds. 2019. Introduction. In Achieving Energy Security in Asia: Diversification, Integration and Policy Implications. Singapore: World Scientific.

Prof. Dr. Farhad Taghizadeh-Hesary
Guest Editor

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• Green finance
• Fossil fuel prices
• Oil prices
• Energy security
• Green energy
• Low-carbon energy
• Renewable energy
• Clean energy
• Green finance
• Green economy
• Green development
• Green fiscal policy
• Green bond
• Green bank
• Carbon taxation
• Pollution taxation