This paper empirically investigates how climate change mitigation affects crude oil prices while using carbon intensity as the indicator for climate change mitigation. The relationship between crude oil prices and carbon intensity is estimated using an Arellano and Bond GMM dynamic panel model. This study undertakes a regional-level analysis because of the geographical similarities among the countries in a region. Regions considered for the study are Africa, Asia and Oceania, Central and South America, the EU, the Middle East, and North America. Results show that there is a positive relationship between crude oil prices and carbon intensity, and a 1% change in carbon intensity is expected to cause about 1.6% change in crude oil prices in the short run and 8.4% change in crude oil prices in the long run while the speed of adjustment is 19%. 1. Introduction Many factors influence the prices of crude oil globally and paramount among these factors are supply and demand activities [1–3], market speculations [4, 5], taxes [6], war, and political instability [7]. These factors have been documented empirically to have significant effects on crude oil prices [8, 9]. The Organisation of Petroleum Exporting Countries (OPEC) as the major global crude oil producers and suppliers have been concerned about these factors especially the ones which from their point of view have adverse effects on the prices of crude oil [10]. Recently, the focus of the global energy industry has shifted to the carbon contents of fossil based energy sources especially with the global spotlight on carbon emissions reduction [11]. This paradigm shift and the extension of Kyoto Protocol’s commitment period to 2020 (i.e., the second commitment period 2013–2020) have thrown up a major economic challenge for countries that are dependent on crude oil export revenues especially OPEC [10]. One of the issues related to this new economic threat perceived by OPEC is the pricing of crude oil under the new climate regime(s). To shed more light on this issue, this paper attempts to determine the relationship between crude oil prices and climate change mitigation activity. To carry out the required investigation in this paper, climate change mitigation activity is represented by a proxy indicator. This study opts for a proxy indicator in order to capture the climate change mitigation activities that have the tendency to impact on crude oil consumption and/or production. The proxy indicator for climate change mitigation chosen for this study is carbon intensity which shows the level of carbon utilisation
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