Uncertainty in the Green Transition

On Wednesday 3 December Ingrid Emilie Flessum Ringstad will hold a trial lecture on a prescribed topic and defend her thesis for the PhD degree at NHH.

The thesis examines how risk, and uncertainty around climate policy, shape financial markets and the real economy. The three papers are linked by a common question: how do investors and firms respond when the path to net zero is unclear?

The work first studies transition risk in global green and conventional financial markets and then traces similar mechanisms into the upstream oil industry on the Norwegian continental shelf, a cornerstone of Norway’s economy and public finances.

The first study employs innovative statistical modeling on shocks and co-movement within financial market, known as the connectedness framework. Analyzing daily data on green bonds, clean energy stocks and carbon prices the study maps how shocks spill over between these markets short-term and long-term perspectives.

Building on the first study and taking a broader perspective of both green and conventional financial markets, the second study investigates how climate policy uncertainty and broader economic policy uncertainty affect connectedness between green and conventional financial markets. Climate policy uncertainty tends to fragment green and conventional markets reducing medium- and long-term connectedness, while general economic policy uncertainty pulls markets together again.

The final chapter moves from financial markets to the real economy. It turns to the Norwegian petroleum sector, constructing a new climate policy uncertainty index for Norway and embedding it in a structural model of oil exploration and extraction. Higher climate policy uncertainty lowers the value of both discovered and undiscovered oil resources and acts like an implicit carbon tax, but without raising public revenue or targeting the most polluting activities, leading to welfare losses.

Together, the essays demonstrate that climate-related uncertainty is a central driver of financial dynamics and real investment decisions in the green transition, underscoring the importance of clear and credible climate policy.