IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v93y2024ipbp625-640.html
   My bibliography  Save this article

Measurement of daily climate physical risks and climate transition risks faced by China's energy sector stocks

Author

Listed:
  • Xu, Xin
  • An, Haizhong
  • Huang, Shupei
  • Jia, Nanfei
  • Qi, Yajie

Abstract

This paper introduces a novel approach for assessing the daily climate transition risk level in China and quantifying the climate physical risk associated with various fossil energy stocks. These measurements offer valuable data sources for empirical research in this field. In assessing climate transition risk, this paper employs the Term Frequency-Inverse Document Frequency (TF-IDF) method to construct a glossary of China's climate transition terminology. It also utilizes the multi-scale moment difference method to evaluate China's daily climate transition risk from 2000 to 2022. Climate physical risk measurement primarily focuses on boundary projection and base period shifting. The analysis reveals that: (1) China's climate policy documents emphasize areas such as energy conservation, meteorology, renewables, low-carbon solutions, and carbon emissions. Notably, meteorology-related provisions, including those for typhoons, rainfall, and drought, indicate heightened government attention to climate disaster response. (2) The research identifies periods of increased climate transition risk levels in 2004–2008 and 2017–2019, with decreases in 2011–2015 and 2020–2022. (3) The distribution of climate physical risk levels in China's fossil energy stocks is right-skewed, with the range [0.86, 0.88] representing the predominant distribution interval and concentration of these risks. The findings of this study can assist policymakers and investors in making informed decisions for market management and investments based on climate risk scenarios.

Suggested Citation

  • Xu, Xin & An, Haizhong & Huang, Shupei & Jia, Nanfei & Qi, Yajie, 2024. "Measurement of daily climate physical risks and climate transition risks faced by China's energy sector stocks," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 625-640.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:625-640
    DOI: 10.1016/j.iref.2024.05.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056024003046
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2024.05.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Frances C. Moore & David B. Lobell, 2014. "Adaptation potential of European agriculture in response to climate change," Nature Climate Change, Nature, vol. 4(7), pages 610-614, July.
    2. Calabrese, Raffaella & Dombrowski, Timothy & Mandel, Antoine & Pace, R. Kelley & Zanin, Luca, 2024. "Impacts of extreme weather events on mortgage risks and their evolution under climate change: A case study on Florida," European Journal of Operational Research, Elsevier, vol. 314(1), pages 377-392.
    3. Stefanos G. Baratsas & Alexander M. Niziolek & Onur Onel & Logan R. Matthews & Christodoulos A. Floudas & Detlef R. Hallermann & Sorin M. Sorescu & Efstratios N. Pistikopoulos, 2021. "A framework to predict the price of energy for the end-users with applications to monetary and energy policies," Nature Communications, Nature, vol. 12(1), pages 1-12, December.
    4. Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2017. "The impact of natural disasters on the stock returns and volatilities of local firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 259-270.
    5. Xu, Ben & Li, Peiwen & Chan, Cholik, 2015. "Application of phase change materials for thermal energy storage in concentrated solar thermal power plants: A review to recent developments," Applied Energy, Elsevier, vol. 160(C), pages 286-307.
    6. Su, Xiang & Tan, Junlan, 2023. "Regional energy transition path and the role of government support and resource endowment in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 174(C).
    7. Bi, Gong-Bing & Song, Wen & Zhou, P. & Liang, Liang, 2014. "Does environmental regulation affect energy efficiency in China's thermal power generation? Empirical evidence from a slacks-based DEA model," Energy Policy, Elsevier, vol. 66(C), pages 537-546.
    8. Reboredo, Juan C. & Ugolini, Andrea, 2022. "Climate transition risk, profitability and stock prices," International Review of Financial Analysis, Elsevier, vol. 83(C).
    9. Shashwat Alok & Nitin Kumar & Russ Wermers & Harrison Hong, 2020. "Do Fund Managers Misestimate Climatic Disaster Risk," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1146-1183.
    10. Reza Marsooli & Ning Lin & Kerry Emanuel & Kairui Feng, 2019. "Climate change exacerbates hurricane flood hazards along US Atlantic and Gulf Coasts in spatially varying patterns," Nature Communications, Nature, vol. 10(1), pages 1-9, December.
    11. Janet L. Reyna & Mikhail V. Chester, 2017. "Energy efficiency to reduce residential electricity and natural gas use under climate change," Nature Communications, Nature, vol. 8(1), pages 1-12, August.
    12. Wang, Chih-Wei & Wu, Yu-Ching & Hsieh, Hsin-Yi & Huang, Po-Hsiang & Lin, Meng-Chieh, 2022. "Does green bond issuance have an impact on climate risk concerns?," Energy Economics, Elsevier, vol. 111(C).
    13. Huynh, Thanh D. & Nguyen, Thu Ha & Truong, Cameron, 2020. "Climate risk: The price of drought," Journal of Corporate Finance, Elsevier, vol. 65(C).
    14. David Laborde & Abdullah Mamun & Will Martin & Valeria Piñeiro & Rob Vos, 2021. "Agricultural subsidies and global greenhouse gas emissions," Nature Communications, Nature, vol. 12(1), pages 1-9, December.
    15. Hottenroth, H. & Sutardhio, C. & Weidlich, A. & Tietze, I. & Simon, S. & Hauser, W. & Naegler, T. & Becker, L. & Buchgeister, J. & Junne, T. & Lehr, U. & Scheel, O. & Schmidt-Scheele, R. & Ulrich, P. , 2022. "Beyond climate change. Multi-attribute decision making for a sustainability assessment of energy system transformation pathways," Renewable and Sustainable Energy Reviews, Elsevier, vol. 156(C).
    16. Balvers, Ronald & Du, Ding & Zhao, Xiaobing, 2017. "Temperature shocks and the cost of equity capital: Implications for climate change perceptions," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 18-34.
    17. J.-F. Mercure & P. Salas & P. Vercoulen & G. Semieniuk & A. Lam & H. Pollitt & P. B. Holden & N. Vakilifard & U. Chewpreecha & N. R. Edwards & J. E. Vinuales, 2021. "Reframing incentives for climate policy action," Nature Energy, Nature, vol. 6(12), pages 1133-1143, December.
    18. Daniel Oudin Åström & Bertil Forsberg & Kristie L. Ebi & Joacim Rocklöv, 2013. "Attributing mortality from extreme temperatures to climate change in Stockholm, Sweden," Nature Climate Change, Nature, vol. 3(12), pages 1050-1054, December.
    19. Dikau, Simon & Volz, Ulrich, 2021. "Central bank mandates, sustainability objectives and the promotion of green finance," Ecological Economics, Elsevier, vol. 184(C).
    20. Gu, Wei & Wang, Jun & Lu, Shuai & Luo, Zhao & Wu, Chenyu, 2017. "Optimal operation for integrated energy system considering thermal inertia of district heating network and buildings," Applied Energy, Elsevier, vol. 199(C), pages 234-246.
    21. Yadu Pokhrel & Farshid Felfelani & Yusuke Satoh & Julien Boulange & Peter Burek & Anne Gädeke & Dieter Gerten & Simon N. Gosling & Manolis Grillakis & Lukas Gudmundsson & Naota Hanasaki & Hyungjun Kim, 2021. "Global terrestrial water storage and drought severity under climate change," Nature Climate Change, Nature, vol. 11(3), pages 226-233, March.
    22. Qian Yin & Jinfeng Wang & Zhoupeng Ren & Jie Li & Yuming Guo, 2019. "Mapping the increased minimum mortality temperatures in the context of global climate change," Nature Communications, Nature, vol. 10(1), pages 1-8, December.
    23. Xue, Shengrong & Zhang, Siqi & Wang, Ying & Wang, Yanbo & Song, Jinghui & Lyu, Xingang & Wang, Xiaojiao & Yang, Gaihe, 2022. "What can we learn from the experience of European countries in biomethane industry: Taking China as an example?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 157(C).
    24. Weiping Jia & Xianwen Jia & Ling Wu & Yanbing Guo & Teng Yang & Ermei Wang & Pan Xiao, 2022. "Research on regional differences of the impact of clean energy development on carbon dioxide emission and economic growth," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    25. Frances C. Moore & Katherine Lacasse & Katharine J. Mach & Yoon Ah Shin & Louis J. Gross & Brian Beckage, 2022. "Determinants of emissions pathways in the coupled climate–social system," Nature, Nature, vol. 603(7899), pages 103-111, March.
    26. Ren, Xiaohang & Zhang, Xiao & Yan, Cheng & Gozgor, Giray, 2022. "Climate policy uncertainty and firm-level total factor productivity: Evidence from China," Energy Economics, Elsevier, vol. 113(C).
    27. Gayathri Vaidyanathan, 2023. "How India is battling deadly rain storms as climate change bites," Nature, Nature, vol. 614(7947), pages 210-213, February.
    28. Michael L. Ross & Chad Hazlett & Paasha Mahdavi, 2017. "Global progress and backsliding on gasoline taxes and subsidies," Nature Energy, Nature, vol. 2(1), pages 1-6, January.
    29. Darwin Choi & Zhenyu Gao & Wenxi Jiang, 2020. "Attention to Global Warming," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1112-1145.
    30. Yamaguchi, Yohei & Shoda, Yuto & Yoshizawa, Shinya & Imai, Tatsuya & Perwez, Usama & Shimoda, Yoshiyuki & Hayashi, Yasuhiro, 2023. "Feasibility assessment of net zero-energy transformation of building stock using integrated synthetic population, building stock, and power distribution network framework," Applied Energy, Elsevier, vol. 333(C).
    31. Dessaint, Olivier & Matray, Adrien, 2017. "Do managers overreact to salient risks? Evidence from hurricane strikes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 97-121.
    32. Melissa R. Allen & Steven J. Fernandez & Joshua S. Fu & Mohammed M. Olama, 2016. "Impacts of climate change on sub-regional electricity demand and distribution in the southern United States," Nature Energy, Nature, vol. 1(8), pages 1-9, August.
    33. Peipei Chen & Yi Wu & Jing Meng & Pan He & Deyu Li & D’ Maris Coffman & Xi Liang & Dabo Guan, 2022. "The heterogeneous role of energy policies in the energy transition of Asia–Pacific emerging economies," Nature Energy, Nature, vol. 7(7), pages 588-596, July.
    34. Rao, Sandeep & Koirala, Santosh & Thapa, Chandra & Neupane, Suman, 2022. "When rain matters! Investments and value relevance," Journal of Corporate Finance, Elsevier, vol. 73(C).
    35. Paul A. Griffin, 2020. "Energy finance must account for extreme weather risk," Nature Energy, Nature, vol. 5(2), pages 98-100, February.
    36. Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2020. "Natural disasters and risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 818-835.
    37. Hain, Linda I. & Kölbel, Julian F. & Leippold, Markus, 2022. "Let’s get physical: Comparing metrics of physical climate risk," Finance Research Letters, Elsevier, vol. 46(PB).
    38. Bernstein, Asaf & Gustafson, Matthew T. & Lewis, Ryan, 2019. "Disaster on the horizon: The price effect of sea level rise," Journal of Financial Economics, Elsevier, vol. 134(2), pages 253-272.
    39. Julien Boulange & Naota Hanasaki & Dai Yamazaki & Yadu Pokhrel, 2021. "Role of dams in reducing global flood exposure under climate change," Nature Communications, Nature, vol. 12(1), pages 1-7, December.
    40. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
    41. Ajay Gambhir & Mel George & Haewon McJeon & Nigel W. Arnell & Daniel Bernie & Shivika Mittal & Alexandre C. Köberle & Jason Lowe & Joeri Rogelj & Seth Monteith, 2022. "Near-term transition and longer-term physical climate risks of greenhouse gas emissions pathways," Nature Climate Change, Nature, vol. 12(1), pages 88-96, January.
    42. Christopher M. Free & Reniel B. Cabral & Halley E. Froehlich & Willow Battista & Elena Ojea & Erin O’Reilly & James E. Palardy & Jorge García Molinos & Katherine J. Siegel & Ragnar Arnason & Marie Ant, 2022. "Expanding ocean food production under climate change," Nature, Nature, vol. 605(7910), pages 490-496, May.
    43. Frances C. Moore & Uris Baldos & Thomas Hertel & Delavane Diaz, 2017. "New science of climate change impacts on agriculture implies higher social cost of carbon," Nature Communications, Nature, vol. 8(1), pages 1-9, December.
    44. Maximilian Kotz & Leonie Wenz & Annika Stechemesser & Matthias Kalkuhl & Anders Levermann, 2021. "Day-to-day temperature variability reduces economic growth," Nature Climate Change, Nature, vol. 11(4), pages 319-325, April.
    45. Bartram, Söhnke M. & Hou, Kewei & Kim, Sehoon, 2022. "Real effects of climate policy: Financial constraints and spillovers," Journal of Financial Economics, Elsevier, vol. 143(2), pages 668-696.
    46. Kleinebrahm, Max & Weinand, Jann Michael & Naber, Elias & McKenna, Russell & Ardone, Armin, 2023. "Analysing municipal energy system transformations in line with national greenhouse gas reduction strategies," Applied Energy, Elsevier, vol. 332(C).
    47. Yukiko Hirabayashi & Roobavannan Mahendran & Sujan Koirala & Lisako Konoshima & Dai Yamazaki & Satoshi Watanabe & Hyungjun Kim & Shinjiro Kanae, 2013. "Global flood risk under climate change," Nature Climate Change, Nature, vol. 3(9), pages 816-821, September.
    48. McKenzie Prillaman, 2023. "Climate-change content shrinks in US university textbooks," Nature, Nature, vol. 613(7943), pages 228-228, January.
    49. Donadelli, M. & Jüppner, M. & Paradiso, A. & Ghisletti, M., 2020. "Tornado activity, house prices, and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    50. Justin Murfin & Matthew Spiegel & Jose Scheinkman, 2020. "Is the Risk of Sea Level Rise Capitalized in Residential Real Estate?," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1217-1255.
    51. Yang Su & Benoit Gabrielle & David Makowski, 2021. "The impact of climate change on the productivity of conservation agriculture," Nature Climate Change, Nature, vol. 11(7), pages 628-633, July.
    52. Jeff Tollefson, 2022. "IPCC’s starkest message yet: extreme steps needed to avert climate disaster," Nature, Nature, vol. 604(7906), pages 413-414, April.
    53. Xia Li & Kevin P. Gallagher, 2022. "Assessing the climate change exposure of foreign direct investment," Nature Communications, Nature, vol. 13(1), pages 1-9, December.
    54. Lanfear, Matthew G. & Lioui, Abraham & Siebert, Mark G., 2019. "Market anomalies and disaster risk: Evidence from extreme weather events," Journal of Financial Markets, Elsevier, vol. 46(C).
    55. Colin Cameron & Shonali Pachauri & Narasimha D. Rao & David McCollum & Joeri Rogelj & Keywan Riahi, 2016. "Policy trade-offs between climate mitigation and clean cook-stove access in South Asia," Nature Energy, Nature, vol. 1(1), pages 1-5, January.
    56. Shang, Yunfeng & Han, Ding & Gozgor, Giray & Mahalik, Mantu Kumar & Sahoo, Bimal Kishore, 2022. "The impact of climate policy uncertainty on renewable and non-renewable energy demand in the United States," Renewable Energy, Elsevier, vol. 197(C), pages 654-667.
    57. Geeta G. Persad & Bjørn H. Samset & Laura J. Wilcox, 2022. "Aerosols must be included in climate risk assessments," Nature, Nature, vol. 611(7937), pages 662-664, November.
    58. Aditi Mukherji, 2022. "Climate change: put water at the heart of solutions," Nature, Nature, vol. 605(7909), pages 195-195, May.
    59. Hong, Harrison & Li, Frank Weikai & Xu, Jiangmin, 2019. "Climate risks and market efficiency," Journal of Econometrics, Elsevier, vol. 208(1), pages 265-281.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Jianfeng & Yao, Xiaoyang & Wang, Hui & Le, Wei, 2024. "Hedging the climate change risks of China's brown assets: Green assets or precious metals?," International Review of Economics & Finance, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    2. Ge, Xiaowen & Xue, Minggao & Cao, Ruiyi, 2024. "Do Chinese carbon-intensive stocks overreact to climate transition risk? Evidence from the COP26 news," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2020. "How Does Climate Change Interact with the Financial System? A Survey," Bank of Japan Working Paper Series 20-E-8, Bank of Japan.
    4. Ai, Li & Gao, Lucia S., 2023. "Firm-level risk of climate change: Evidence from climate disasters," Global Finance Journal, Elsevier, vol. 55(C).
    5. Thomas R. Berry‐Stölzle & Simon Fritzsch & Philipp Scharner & Gregor Weiß, 2024. "Insurers' climate change risk management quality and natural disasters," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 91(2), pages 263-298, June.
    6. Braun, Alexander & Braun, Julia & Weigert, Florian, 2023. "Extreme weather risk and the cost of equity," CFR Working Papers 23-08, University of Cologne, Centre for Financial Research (CFR).
    7. Siamak Javadi & Abdullah‐Al Masum & Mohsen Aram & Ramesh P. Rao, 2023. "Climate change and corporate cash holdings: Global evidence," Financial Management, Financial Management Association International, vol. 52(2), pages 253-295, June.
    8. Roy Kouwenberg & Chenglong Zheng, 2023. "A Review of the Global Climate Finance Literature," Sustainability, MDPI, vol. 15(2), pages 1-32, January.
    9. Qingjie Du & Albert Tsang & Yang Wang, 2024. "Flood risk and corporate future orientation: Evidence from sea level rise risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 51(1-2), pages 555-594, January.
    10. Duan, Tinghua & Li, Frank Weikai, 2024. "Climate change concerns and mortgage lending," Journal of Empirical Finance, Elsevier, vol. 75(C).
    11. Gong, Xu & Liao, Qin, 2024. "Physical climate risk attention and dynamic volatility connectedness among new energy stocks," Energy Economics, Elsevier, vol. 136(C).
    12. Malik, Ihtisham A. & Chowdhury, Hasibul & Alam, Md Samsul, 2023. "Equity market response to natural disasters: Does firm's corporate social responsibility make difference?," Global Finance Journal, Elsevier, vol. 55(C).
    13. Birindelli, Giuliana & Miazza, Aline & Paimanova, Viktoriia & Palea, Vera, 2023. "Just “blah blah blah”? Stock market expectations and reactions to COP26," International Review of Financial Analysis, Elsevier, vol. 88(C).
    14. Reghezza, Alessio & Altunbas, Yener & Marques-Ibanez, David & Rodriguez d’Acri, Costanza & Spaggiari, Martina, 2022. "Do banks fuel climate change?," Journal of Financial Stability, Elsevier, vol. 62(C).
    15. Nguyen, Quyen & Diaz-Rainey, Ivan & Kuruppuarachchi, Duminda, 2023. "In search of climate distress risk," International Review of Financial Analysis, Elsevier, vol. 85(C).
    16. Javadi, Siamak & Masum, Abdullah-Al, 2021. "The impact of climate change on the cost of bank loans," Journal of Corporate Finance, Elsevier, vol. 69(C).
    17. Donato Masciandaro & Romano Vincenzo Tarsia, 2021. "Society, Politicians, Climate Change and Central Banks: An Index of Green Activism," BAFFI CAREFIN Working Papers 21167, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    18. Tristan Jourde & Arthur Stalla-Bourdillon, 2024. "PEnvironmental Preferences and Sector Valuations," Working papers 964, Banque de France.
    19. Rao, Yonghui & Hu, Zijiang & Sharma, Susan Sunila, 2021. "Do managers hedge disaster risk? Extreme earthquake shock and firm innovations," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    20. Donato Masciandaro & Romano Vincenzo Tarsia, 2021. "Society, Politicians, Climate Change and Central Banks: An Index of Green Activism," BAFFI CAREFIN Working Papers 21167, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:625-640. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.