Energy Transition Pathways Involving Fossil Fuels and Low‐Carbon Technologies and Sustainable Finance
Abstract
This study provides a quantitative econometric analysis of structural interactions between fossil‐fuel and low‐carbon energy technologies using high‐frequency data for coal, natural gas, crude oil, solar photovoltaics (PVs), onshore wind, hydrogen, and battery storage. The analysis integrates VAR–GFEVD connectedness modeling, dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC–GARCH) dynamic correlation estimation, portfolio optimization, and scenario‐based projections to evaluate volatility transmission, dependency structures, and long‐term system evolution. The results show that fossil‐fuel technologies, particularly coal and natural gas, act as dominant volatility transmitters, while renewable technologies primarily function as net receivers of shocks. Dynamic correlations reveal persistent coupling between natural gas and solar PV, alongside gradual decoupling trends for wind technologies. Portfolio analysis indicates that diversification benefits depend on underlying economic linkages rather than simple technological classification. Regression results further demonstrate that system connectedness is jointly influenced by market volatility, technological cost dynamics, and policy‐related factors. Scenario projections indicate that high‐innovation pathways achieve the most favorable outcomes, system costs declining to ~45 USD/MWh by 2050, emission reductions approaching 80%, and system connectedness decreasing to around 50%–55%. These findings highlight the importance of technological innovation, renewable deployment, and policy stability in reducing systemic risk and enabling structurally resilient energy transitions.