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Contributions to Finance and Accounting
HasanDinçer
SerhatYükselEditors
Sustainability
in Energy
Business and
Finance
Approaches and Developments in
theEnergy Market
Contributions to Finance and Accounting
The book series ‘Contributions to Finance and Accounting’features the latest
research from research areas like financial management, investment, capital markets,
financial institutions, FinTech and financial innovation, accounting methods and
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this series are primarily monographs and edited volumes that present new research
results, both theoretical and empirical, on a clearly defined topic. All books are
published in print and digital formats and disseminated globally.
More information about this series at https://link.springer.com/bookseries/16616
Hasan Dinçer •Serhat Yüksel
Editors
Sustainability in Energy
Business and Finance
Approaches and Developments in the Energy
Market
Editors
Hasan Dinçer
Faculty of Economics and Administrative
Sciences
Istanbul Medipol University
Istanbul, Turkey
Serhat Yüksel
Faculty of Economics and Administrative
Sciences
Istanbul Medipol University
Istanbul, Turkey
ISSN 2730-6038 ISSN 2730-6046 (electronic)
Contributions to Finance and Accounting
ISBN 978-3-030-94050-8 ISBN 978-3-030-94051-5 (eBook)
https://doi.org/10.1007/978-3-030-94051-5
©The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland
AG 2022
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Contents
Creation of Energy Risk Insurance System ....................... 1
Laura Baitenova, Lyailya Mutaliyeva, Natalia Sokolinskaya,
and András Vincze
ICT Trade and Energy Transition in the BRICS Economies ......... 13
Ibrahim Nandom Yakubu, Ayhan Kapusuzoglu, and Nildag Basak Ceylan
Features of the Emergence and Functioning of the Energy
Uncertainty Management in Russia ............................ 25
Georgy Shilin and Henrik Zsiboracs
Are Changes in Electricity Production Perpetual or Temporary:
An Evidence from Emerging Countries ......................... 37
Ahmet Arif Eren, Orhan Şimşek, and Zafer Adalı
Financial Evaluation of Energy Investments in Russia .............. 49
Elizaveta Ibragimova and Nora Baranyai
Strategic Talent Perception in the Energy Sector .................. 61
Gizem Topsakal Acet and Pelin Vardarlıer
Relationships between Energy Efficiency on Output and Energy
Efficiency on Carbon Emission ................................ 71
Imran Hussain, Swarup Samanta, and Ramesh Chandra Das
Examination of the Relationship between Economic Growth, Natural
Resources, Energy Consumption, Urbanization, and Capital ......... 83
Mahmut Sami Duran and Şeyma Bozkaya
Analysis of the Activities of the Energy Risks Insurance Agency
in Russia ................................................. 95
Muhammad Safdar Sial and Konstantin Panasenko
v
Development, Trade Openness, and Pollution: Is there any
Threshold? ............................................... 109
Fatma Taşdemir
Analysis of the Functioning of the Energy Safety Conditions ......... 121
Diana Stepanova, Yulia Finogenova, Gabor Pinter, and Ismail Ismailov
How to Improve Energy Investments in Russia ................... 133
Elizaveta Ibragimova and Mir Sayed Shah Danish
Digital Activist Movements for Energy Resources: The Case
of Greenpeace Turkey ...................................... 145
Başak Gezmen
The Stability of Financial Institutions and Counterparties ........... 159
Zaffar Ahmed Shaikh and Nikita Makarichev
Roles of FDI, Energy and Carbon Emission in Convergence
or Divergence of Income in BRICS Nations in Neoclassical Growth
Framework ............................................... 171
Ramesh Chandra Das and Aloka Nayak
Key Issues for the Improvements of Shallow Geothermal Investments . . 183
Serhat Yüksel, Hasan Dinçer, Alexey Mikhaylov, Zafer Adalı,
and Serkan Eti
Religious Principles for the Development of Energy Investments ...... 195
Nikita Makarichev, Tomonobu Senjyu, and Sergey Prosekov
Implications of Energy Subsidies from Economic Standpoint ......... 205
Cansın Kemal Can
vi Contents
Creation of Energy Risk Insurance System
Laura Baitenova, Lyailya Mutaliyeva, Natalia Sokolinskaya,
and András Vincze
1 Introduction
The importance of creating a system that protects people’s energy risks in banking
institutions was recognized at the end of the last century. In the Decree of the head of
state, the Bank of the Russian Federation was instructed to speed up the formation
and launch of the fund for insuring the financial assets of Russian banks to protect
project funds (Qiu et al., 2020). Now, energy risk insurance (or the energy risk
insurance system) is an important, relevant, and mandatory system, due to the
efficiency of which the stability of the economy in the state is ensured (Zhou
et al., 2021). The most vulnerable and fragile, especially in times of crisis, is the
work of economic market agents, the efficiency of monetary and credit institutions,
as well as other intermediaries whose functions are significant for the formation and
improvement of the state of the economy and objects of economic activity (Fang
et al., 2021).
The most urgent problems are those related to providing financial protection to
creditors, especially small companies and individuals, whose behavior can lead to
L. Baitenova (*)
Almaty University of Power Engineering and Telecommunications named after Gumarbek
Daukeev, Almaty, Kazakhstan
L. Mutaliyeva
L.N. Gumilyov Eurasian National University, Astana, Kazakhstan
N. Sokolinskaya
Financial University under the Government of the Russian Federation, Moscow, Russian
Federation
A. Vincze
Circular Economy University Center, Renewable Energy Research Group, University of
Pannonia, Veszprém, Hungary
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_1
1
confusion, destruction of the fragile balance of the entire system, and bankruptcy. An
important condition for the operation of any banking system is the presence of trust
in it on the part of projects. Just insurance of energy risks in various banking
organizations and in the state inspires projects with confidence that in case of any
unforeseen situations, they will be able to return either the entire amount of funds
invested in the bank, or at least part of the amount, but not lose everything that was
given to the bank for storage and accumulation.
Of course, payments to projects in the event of bank bankruptcy are made at the
expense of special funds created by banks with the active participation of the
government and the state. For the most part, energy risk insurance is aimed at
protecting small projects that do not have any opportunities and means to own
information about the bank. Those projects that do not have sufficient information
about the bank, deposits, and various financial processes are usually unable to study,
monitor, or analyze the offers of competing banks to assess their level of reliability
due to a lack of incoming information.
It is worth considering that the obligation to insure energy risks appeared on the
territory of Russia relatively recently. This point is explained by the fact that in
Soviet times there was no need for such an organization, all banks were officially
considered state-owned banks at that time, and the state itself, in turn, gave guaran-
tees that the funds invested by citizens were safe. The energy risk insurance, working
not only in Russia, but also in other countries, was able to prove its usefulness,
efficiency, and sufficient level of quality, which was also proved by the assistance of
the system and its representatives to the fact that various elements of credit
resources, that is, citizens ‘money, are involved in this section.
Everything listed above also explains not only the importance, but also the
relevance of the research work. The object of research is the peculiarities of
formation of energy risk insurance. The subject of the research is both economic
and financial relations, as well as natural rules of operation of energy risk insurance
of citizens with non-profit banking organizations in Russia. The purpose of the study
is to identify both positive and negative aspects of the operation of the energy risk
insurance system, as well as to determine the prospects for the operation of energy
risk insurance in the future.
Methodological basis of the study. During the research and its formation, private
scientific and general scientific methods and sources were used. Also, when creating
the work, we used an analysis of the works of researchers and scientists in the
relevant fields. One of the main (theoretical) implications of this study is its results,
which expand and enrich the understanding of the formation of insurance protection
of financial energy risks of citizens.
2 L. Baitenova et al.
2 Literature Review
As for the practical significance of this work, it is an opportunity to use recommen-
dations, suggestions, and conclusions in the subsequent work of banking institutions
to improve the overall performance of insurance coverage. In any modern state, there
is a well-developed mechanism that protects money (Conteh et al., 2021; Denisova
et al., 2019; Huang et al., 2021a,2021b; Mikhaylov, 2018a,2018b,2022;
Mikhaylov et al., 2019; Meynkhard, 2019,2020; Nyangarika et al., 2019a,2019b).
The basis of this system is, for the most part, that even if the bank goes bankrupt
(or its license is revoked), the obligation to return money to projects will be
transferred to a special organization. The main task of the system is to protect the
personal and financial interests of even the smallest projects (Alwaelya et al., 2021;
An & Mikhaylov, 2020,2021; An et al., 2019a,2019b,2020a,2020b,2020c,
Dooyum et al., 2020; Grilli et al., 2021; Gura et al., 2020; Mikhaylov, 2020a,
2020b,2020c,2021a; Mikhaylov & Tarakanov, 2020; Mikhaylov et al., 2021a,
2021b; Moiseev et al., 2020,2021; Morkovkin et al., 2020a,2020b; Mutalimov
et al., 2021; Varyash et al., 2020; Yumashev & Mikhaylov, 2020; Yumashev et al.,
2020; Zhao et al., 2021).
From the very beginning of its existence, insurance has been one of the most
important methods of ensuring the need to compensate for damage in the event of
unforeseen events (An et al., 2021; Danish et al., 2020,2021; Dayong et al., 2020;
Ivanyuk, 2018; Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020; Ivanyuk &
Soloviev, 2019; Ivanyuk et al., 2020; Lisin, 2020; Mikhaylov et al., 2018;
Nyangarika et al., 2018, Uyeh et al., 2021).
Insurance as a process can be viewed from several points of view:
Economic: In this case, insurance is an economic relationship formed during the
creation, distribution, and use of public trust funds necessary to compensate for
losses, if they were received as part of an insured event. Refunds are made on a
contractual basis (Bhuiyan et al., 2021; Candila et al., 2021; Dong et al., 2021;
Dorofeev, 2020; Liu et al., 2021a,2021b,2022; Mikhaylov, 2021b, Mukhametov
et al., 2021; Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka et al., 2018;
Saqib et al., 2021; Sunchalin et al., 2019; Udalov, 2021; Uandykova et al., 2020;
Yüksel et al., 2021a,2021b,2021c).
Financial: In this case, insurance becomes an autonomous financial institution,
which represents a whole complex of economic relationships, under which financial
insurance funds are created (Mikhaylov, 2018c; Mikhaylov et al., 2019). In order to
handle different financial risks, this situation becomes a necessity (Jun et al., 2021;
Kou et al., 2021; Silahtaroğlu et al., 2021).
Legal information: Insurance here is a set of legal norms through which social
relations are regulated, which are manifested during both the creation and use of
insurance funds. Insurance can also be studied as a contract, a specific legal
obligation, and a legal relationship (Melnichuk et al., 2020; Nie et al., 2020).
Insurance is a certain type of legal relationship in which the insured person pays
the insurance company a certain amount of money. In exchange for this, in the event
Creation of Energy Risk Insurance System 3
of an insured event, the insured person will receive compensation for possible
financial losses from the insurer.
In such a relationship, the party–the insurer will have to bear the risk for some
time for the consequences that negatively affect the property or life of the insured
person (policyholder) in the event of insured events. Upon the occurrence of events,
the insurer must pay the other party the insurance amount.
The energy risk insurance adheres to several fundamental principles in its
education:
•Transparency in the implementation of activities (Li et al., 2020).
•Accumulative nature, which is achieved due to the constancy of contributions
(Yuan et al., 2021).
•Mandatory participation (Liu et al., 2021a,2021b).
•Reduction of the level and magnitude of risks for projects if banks did not fulfill
their obligations in emergency cases.
3 Methods
If we adhere to the concept of formation of energy risk insurance, then certain
relationships in energy risk insurance appear based on legal norms, and not because
of the free expression of the will of the parties. Also, these relations develop based on
legislation and end their existence since the same legislation. The relationships
created in energy risk insurance are based on two principles—subordination and
power, which means that the relationships related to the formation, distribution, and
use of the energy risk insurance fund are property-based.
Today, insurance can be considered as both a social guarantee provided by the
state and a source for investment. One of the key tasks assigned to energy risk
insurance is to protect citizens ‘funds placed by citizens themselves in banks. In
many countries, there is a system for protecting the financial condition and interests
of the population, which is perhaps the most important social task. Energy risk
insurance is mandatory in any member State of the European Union. As an example,
energy risk insurance operates on the territory of Brazil, the USA, Japan, as well as
on the territory of the CIS countries-Armenia, Ukraine, Kazakhstan, and others.
In general, it is possible to classify existing energy risk insurances in the world
according to numerous criteria. A method for organizing energy risk insurance. In
this classification, there are systems with positive guarantees, as well as systems with
those guarantees that are not clearly expressed. The essence of such systems is
revealed in the following names:
•Legal guarantee (usually they are also called insurance systems).
•General state guarantees (sometimes they are also called guarantee guarantees).
A characteristic feature of the first type is the existence of a procedure established
at the legislative level concerning compensation for possible financial losses to
4 L. Baitenova et al.
projects in the event of bankruptcy of a banking institution that is part of energy risk
insurance. Clients of a banking institution will know in advance about the availabil-
ity and amount of the insurance amount available to them in case of problems in the
bank’s operation. Such a system allows you to create confidence in projects that their
money will be saved at the expense of predictability. Also, such a system allows you
to accumulate free financial resources of a banking organization.
A characteristic feature of the second type of system is the lack of strict legislative
regulation, which determines the methods and possible ways to protect energy risks.
The possibilities for obtaining compensation, as well as the amount of this compen-
sation itself, depend entirely on the current situation, as well as on the decision made
by the state bodies that determine the terms, conditions, and amounts of payments.
The basis of such a system is trust in the state on the part of citizens, which is also a
characteristic feature of states that have centralized strict management and differs in
the dependence of banking institutions on various structures of state activity.
Different countries have different ways of addressing issues related to the use of
existing financial investment guarantee systems. For example, Australia and
New Zealand do not have any insurance systems at all, but instead of insuring
energy risks, these countries have established disclosure requirements, which
strengthen economic controls. Organization of participation of banking institutions
in insurance systems. Within the framework of this classification, it is possible to
distinguish systems of mandatory and voluntary participation of banking
institutions.
4 Results
Usually, “money transfer operations”are carried out in non-cash form, unless, of
course, the bank has signs of insolvency. On the territory of Russia, the creation of
energy risk insurance is associated with the need to:
•Solving the constitutional priority tasks of the state related to the protection of
citizens ‘rights and guaranteeing their peace of mind.
•Creating prerequisites for increasing the overall level of people’s trust in banks.
Today, there are no systems of banking institutions that do not have the risk of
facing a crisis, just as there is no energy risk insurance that could be suitable for all
banks in the entire state. Both the formation and development of energy risk
insurance in Russia took place in several different stages. The creation of energy
risk insurance, as well as the development of the regulatory and legislative frame-
work, took 10 years, and the process itself was quite difficult.
It is noteworthy that experts from the USA, England, and Switzerland were
involved in creating such laws, as well as in forming proposals related to the
protection of individual savings. For this reason, the domestic legislation of those
years was based mostly on European and American practice. Due to the fact that
banks in those years were just beginning to be created, and no one not only knew
Creation of Energy Risk Insurance System 5
about any bankruptcy, but also did not think about it, bank managers did not openly
support this idea. But, even with this in mind, funds were still collected, although no
one used them.
Ideologists who were at the origin of the formation of energy risk insurance
recalled that this idea, as well as its promotion, was extremely difficult to move
forward. But even at the beginning of the foundation’s formation, everyone realized
the importance of forming such a system, although at the initial stages, there were
disagreements on some issues, especially regarding the financial content of the fund.
Given the persistent and noticeable budget deficit, the high level of inflation, and the
importance of correcting the economic situation in the country, issues related to
restoring people’s confidence in banks and in the banking system turned out to be
important.
This very decree laid the foundation for energy risk insurance for the first time in
Russia’s history. The same decree also determined sufficient protection of the
interests of physical projects, also indicating the protection of citizens ‘savings
with measures aimed at creating energy risk insurance as an analog of systems
existing in other states. However, this work was never carried out. According to
experts, this step, although it was taken, still violated the legislation in force at that
time, as well as the charter of the Central Bank of the Russian Federation.
The draft decision on energy risk insurance has provided for one point. It is noted
that if there is a shortage of funds in the insurance fund, state credit products are used
in insurance cases. At the same time, there was a request to the Government to
provide initial contributions to the funds being formed. Just all these steps became
the most important stumbling block, which lasted for several more years.
At the same time, in May 1994, on the 16th, the European Parliament adopted
Directive No. 94/19 regulating the deposit guarantee system. A special feature of the
compulsory insurance system is the participation of all banks in such a system,
which thus becomes insurance members. The same system provides the same
guarantees for projects of different banks.
However, even if all these advantages are considered, it is worth highlighting the
weakening motivation, as well as the weakening desire of customers to search for a
reliable bank. At the same time, banks ‘costs increase due to payments to insurance
funds, which ultimately increases the cost of services provided by banks. Such
systems operate in Japan, Finland, as well as in the USA, Canada, and other
countries.
As for the voluntary system, if it exists, banks have the right to participate in such
a system or to opt out of it. Those banks that do not participate in energy risk
insurance are less competitive in the market of products provided by banks. The lack
of competition is related to the fact that customers treat banks that are not partici-
pants in energy risk insurance with less confidence, but risk making a deposit with a
forecast for a higher level of income.
For this reason, it is necessary to attract clients to banks without guarantees using
the most common method, namely by raising rates, which is useful for customers,
but not useful for the bank, whose costs inevitably increase. Even if the membership
6 L. Baitenova et al.
is voluntary, the authorities regulating the activity of banks and the possibility of
joining still provide for certain restrictions on banking activities.
As an example, regulatory authorities may request a bank to provide insurance
coverage, without which the bank is not granted a license to conduct certain
operations. Also, if a bank does not have insurance coverage, it may not become a
member of the association of banks. The state does all these actions to encourage
banks to join the insurance system based on their own decision. The next classifi-
cation is the amount of energy risk insurance guarantees. Here there are full size,
limited, and discretionary sizes. Complete systems provide a reliable guarantee of
payment on deposits, which also indicates the growing confidence of customers in
banks.
Limited systems are defined as guaranteed provision of only partial coverage of
customer energy risks. Most often, such guarantees are given only to small projects
that are not very well oriented in the market environment. Naturally, large customers
still have the motivation to choose the right banking institution.
5 Conclusions and Discussion
For commercial banking institutions, such a system makes it much easier to work
with various small clients, and due to reduced fees, possible costs are reduced, while
prices for services will not increase. However, this system has a small difficulty in
determining the optimal amount of the amount that is subject to insurance. The
following system, discretionary, is one of the types of limited system in which the
insurance object expands during a crisis of the entire banking system. This system is
the most flexible among the others.
Another classification is the degree of State participation. According to this
classification, there are such types of insurance systems as public, private, and
mixed. Most often, state systems are formed in the process of maintaining a system
of mandatory energy risk insurance. In this case, insurance organizations are formed
as state-owned, operating on a non-commercial basis.
The resources of this company are formed using state financial resources, as well
as using contributions from banking institutions. This form is used to create insur-
ance systems in the UK and the USA. Private energy risk insurances are formed and
implemented at the expense of specialized organizations, whose activities are
financed by financial contributions from participating banks. In this case, the state
does not interfere in any way in these processes. Private energy risk insurances exist
in Germany, France, and Luxembourg.
Finally, in mixed energy risk insurance, banks and the state are equally involved
in creating resources for the insurance company. One example of such a mixed
system is Japan, where the authorized capital has been operating since 1971, and it
was created by the government, the state bank, and private banks, and in equal
shares.
Creation of Energy Risk Insurance System 7
The last classification is the organization of financing cash payments or the
method of accumulating funds. In this case, the systems may or may not have
funding. Systems with financing are since specialized funds are created for payments
of deductions for insurance. Funds are formed using regular contributions made by
participating banks. Such a system has a fruitful effect on increasing trust, and in the
event of an insured event, such a system also accelerates the transfer of funds as
compensation. As for the system without financing, here the funds needed for
compensation can only be found if necessary, such as the bankruptcy of a banking
institution. This is a less preferable system, because in the event of a crisis, many
banks come under attack, and it is very difficult to collect the necessary amount.
Also, fundraising in this system is a long process, which causes panic among
numerous projects. The goals of energy risk insurance based on the rapid elimination
of the crisis and its consequences, as well as the formation of a stable system, cannot
be achieved (Cheng et al., 2020; Haiyun et al., 2021; Zhe et al., 2021).
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12 L. Baitenova et al.
ICT Trade and Energy Transition
in the BRICS Economies
Ibrahim Nandom Yakubu, Ayhan Kapusuzoglu, and Nildag Basak Ceylan
1 Introduction
Energy is increasingly recognized as a key component in the production process and
its demand is growing exponentially globally. The traditional energy sources such as
coal, oil, and natural gas (all of which are classified as non-renewable forms of
energy) have a strong influence on the growth and prosperity of most economies
(Ellabban et al., 2014). These energy sources are also accessible and continue to
provide good options for powering automobiles. Despite the benefits of
non-renewable energy sources, they have several drawbacks. Among the problems
associated with the use of non-renewable energy sources is the increasing emission
of carbon dioxide (CO
2
), which primarily contributes to climate change.
Given the downsides of the natural energy sources, switching from the need for
non-renewables towards the usage of renewable energy has been massively advo-
cated, and most countries have responded to these campaigns by gradually moving
their emphasis to these renewable sources (Asiedu et al., 2021). As per the Interna-
tional Energy Outlook, renewable energy demand has accelerated globally over the
years with an anticipation that it will reach 50% by the year 2050.
Among the world regional blocs, the BRICS countries constituted by Brazil,
Russia, India, China, and South Africa have experienced a rapid transformation with
growth in the level of economic activities (Pathak & Shah, 2019). In the energy
landscape, the BRICS bloc is also among the leading suppliers and consumers of
energy in the world. To cite, the International Energy Agency (IEA) reported that the
I. N. Yakubu
Graduate School of Social Sciences, Ankara Yildirim Beyazit University, Ankara, Turkey
A. Kapusuzoglu (*) · N. B. Ceylan
Faculty of Business, Ankara Yildirim Beyazit University, Ankara, Turkey
e-mail: akapusuzoglu@ybu.edu.tr;nbceylan@ybu.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_2
13
bloc’s contribution to the overall energy supply in the year 2017 was estimated at
36.4%, placing it as the second-largest energy supplier after the OECD.
Aside from the contribution to the non-renewable energy base, the BRICS
alliance is also emerging as one of the leading participants in the green energy
sector, as some members in the bloc are rapidly substituting “dirty energy”sources
with renewable energy. Per the United Nations (UN) report issued in the year 2018,
China alone accounted for about 45% of the entire sum of green energy investment
on a global scale. The report further established that the renewable energy invest-
ment by China, Brazil, and India labeled as the “Big Three”in the BRICS bloc
amounted to over half of the total renewable energy investment globally. Consider-
ing the drive to achieving clean energy by the BRICS economies, it is of importance
to investigate what factors influence the process of acclimating from non-renewables
to renewable energy sources in the bloc. Hence, the aim of this study. The literature
has outlined several factors as drivers of renewable energy consumption. Among
these factors include economic growth (Alam & Murad, 2020), foreign direct
investment (Polat, 2018), trade openness (Murshed, 2018a,2018b), institutional
factors (Chen et al., 2021), and many others.
Notwithstanding the calls for commitment for clean energy, technological impov-
erishment is commonly cited as a key roadblock to accomplishing the energy
transition targets (Murshed et al., 2020). The trade of ICT goods is however expected
to remove these technological constraints that have typically hampered the smooth
energy transition processes of emerging economics. In this study, we investigate
how ICT trade influences renewable energy transition employing BRICS economies.
Further to exploring the possible impact of ICT trade on BRICS’s energy transition,
we examine whether the increase in openness to ICT trade simultaneously decreases
CO
2
emission in the bloc. As far as we are aware, this research presents an initial
attempt to address the influence of ICT trade on renewable energy transition with a
focus on the BRICS countries.
The rest of this chapter is laid out as follows. The second part discusses the
literature review. The method is given in Sect. 3. The fourth part highlights the
findings and discussions, while Sect. 5provides the conclusions and policy
suggestions.
2 Literature Review
This part of the chapter is divided into different sub-headings, the first of which
examines the theoretical basis of the study, and the second of which sheds light on
the related empirical findings presented in the literature on ICT, trade-renewable
energy linkage and ICT, trade-environmental pollution nexus.
14 I. N. Yakubu et al.
2.1 Theoretical Background
The Heckscher-Ohlin model, which was further developed by Vanek (1968) can be
used to comprehend the rational basis for easing barriers to trade. The theory
illustrates how trade activities are carried out, particularly across countries with
disparate features. The theory argues that countries with a high concentration of
factor endowment receive a significant amount of investment from abroad (Ohlin
1933). Therefore, a country will strive to be a leading exporter of commodities that
heavily utilize its bountiful factors while importing items that profoundly utilize its
scarce resources. Following this theory, the removal of trade restrictions will accel-
erate the flows and transfer of ICT goods to locations or countries with substantially
lower factor endowments in the production of these goods given their available
resources. Increasing ICT trade openness will contribute to the creation of a solid
ICT infrastructure which is expected to facilitate a smooth energy transition process
through the successful implementation of renewable energy technologies.
2.2 ICT, Trade Openness-Renewable Energy Nexus
ICT trade and the use of renewable energy resources are not well studied in the
literature. In spite of this, numerous studies have documented how increasing trade
openness drives the usage of renewable energy, particularly in emerging markets.
Given the notion that ICT products trading volume forms a fraction of the entire
trade amounts of nations, the extant studies on the trade openness-renewable energy
adoption can give a better idea and the perception on the link between ICT trade and
the issue of renewable energy demand.
On the trade openness renewable energy consumption nexus, Murshed (2018a,
2018b) looked into the impact of trade openness on the energy transition process of
some selected Asian countries over the period 2000–2017. Applying the two-stage
least squares technique, the results demonstrated that a boost in trade increases the
use of renewable energy in the studied countries. Using a sample of 25 countries in
the OECD bloc, Alam and Murad (2020) analyzed how trade openness and some
other factors facilitate renewable energy consumption. Employing different panel
estimation methods, the authors revealed that renewable energy consumption is
significantly triggered by an increase in trade openness. In the instance of Malaysia,
Lau et al. (2018) examined the factors influencing renewable energy usage for the
years 1980–2015. The findings showed that in the long term, trade openness
negatively motivates the consumption of renewable electricity. Uzar (2020), in a
cross-country study involving both advanced and developing countries, examined
the factors driving renewable energy consumption. The conclusions of the ARDL
approach revealed that trade liberalization had no considerable influence on
ICT Trade and Energy Transition in the BRICS Economies 15
renewable energy use. Employing data of countries from Sub-Saharan Africa, Asia,
Latin America, and the Caribbean Islands, Murshed (2018a,2018b) noted that
enhanced trade on average inhibits renewable energy utilization. Using yearly data
spanned 1971–2015, Shakouri and Khoshnevis Yazdi (2017) analyzed the correla-
tion between openness to trade and energy usage in South Africa. With the ARDL
approach, the researchers evidenced that the variation in energy demand is
influenced by trade openness, and a two-way interaction exists between trade
openness and demand for renewable energy. Basu et al. (2020) explored the effect
of trade openness and other factors on the share of renewable energy in India. The
study reported that a surge in trade facilitates the implementation of renewable and
energy-efficient technologies. Applying the vector error correction model, Lin et al.
(2016) scrutinized the motivators of renewable electricity demand in the case of
China. Evidence from the analysis showed that the level of openness to trade
impedes renewable electricity demand. Using a sample of South Asian countries,
Murshed (2020) examined the impact of ICT trade on energy transition. The findings
of the study depicted that ICT trade boosts the usage of renewable energy while
simultaneously increasing the percentage of renewable energy in the final energy
demand. Wang and Zhang (2021) analyzed how free trade affects renewable energy
using a sample of 186 countries across the globe. The study suggested a direct
influence of free trade on renewable energy in economies classified as high- and
upper-middle-income, albeit with an inverse impact on lower-middle-income
nations.
Notwithstanding the deficient empirical studies on the influence of ICT trade on
renewable energy transition, some studies have acknowledged the significance
of ICT infrastructure in leveraging the uptake of renewable energy sources.
Stallo et al. (2010), for example, opined that the adoption of sophisticated ICT
products can augment existing processes to enhance power generation from renew-
able energy sources. Ahmed et al. (2017)affirmed that the growth in the ICT sector
facilitates energy transition through the use of ICT products which aids in energy
conservation.
2.3 ICT, Trade Openness-Carbon Dioxide (CO
2
)
Emission Nexus
Given the second objective which is to examine how ICT trade contributes to CO
2
emission, we review the literature on the influence of trade openness and ICT on
CO
2
emission. For the impact of trade on emission levels, Managi et al. (2009)
assessed the environmental outcome of trade openness using data of developing
and developed economies over the period 1973–2000. The authors showed that
trade improves environmental quality in OECD economies and increases CO
2
emission in countries that are not in the OECD region. Similarly, in the OECD
16 I. N. Yakubu et al.
countries, Gozgor (2017) posited a long-term negative influence of trade openness
on CO
2
emission. Li and Qi (2011) analyzed the trade openness and CO
2
emission
link in the case of China for the years 1997–2008. Applying different estimation
approaches, the results established that CO
2
emission upsurges with improvement in
trade openness. Shahbaz et al. (2017) assessed the influence of trade on the emission
of CO
2
using a panel of 105 economies. The results from the vector error correlation
model indicated that overall, openness to trade has a detrimental impact on the
environment though with varying effects among country classifications. Employing
a sample of emerging economies with data that spanned from 1990–2013, Saidi and
Mbarek (2017) explored the effect trade openness has on CO
2
emission. The results
showed no significant impact of trade on emissions levels in the countries examined.
Using the pooled mean group technique, Park et al. (2018) found that increasing
trade levels lessens CO
2
emission in the European Union. In the Belt and Road
region, Sun et al. (2019) discovered that trade openness leads to an increasing level
of CO
2
emission. In investing the impact of openness to trade on pollution levels,
Tachie et al. (2020) invoked the mean group approach on data collected from the
EU-18. The results reported that CO
2
emission magnifies with growth in trade. Ali
et al. (2021) evidenced that trade coupled with technological innovation mitigates
the emission of CO
2
while trade stimulated by economic growth increases pollution
levels in Asian countries. In analyzing the long-term link between trade and CO
2
emission, Sun et al. (2020) applied the panel cointegration techniques with data from
Sub-Saharan African countries. The researchers established that CO
2
emission in the
long term is somehow reduced as trade increases.
The extant literature has also documented how the use of ICT influences CO
2
emissions though with conflicting findings. For instance, relying on the STIRPAT
model, Zhang and Liu (2015) established that the growth of ICT industry in China
lowers the emissions of carbon dioxide. Raheem et al. (2020) noted that in the G7
alliance, ICT directly influences emissions in the long term. Nguyen et al. (2020)
using G20 countries reported a converse relationship between ICT and emissions.
Amri et al. (2019) observed no significant association between ICT and emissions
levels in Tunisia. Invoking the Quantile ARDL method, Godil et al. (2020)
established that emissions levels in Pakistan are negatively driven by ICT. Lu
(2018) showed a negative significant influence of ICT on the level of emissions in
12 Asian economies. Similarly, according to Haini (2021), the use of ICT products in
ASEAN economies continuously lessens the emission of carbon dioxide. Applying
the ARDL model, Khanal (2021) revealed that ICT in the long run inimically affects
the environment.
From the literature review, it can be noted that the direct influence of ICT trade on
renewable energy transition and CO
2
emissions is virtually absent. However, ample
studies have considered how trade in general influences renewable energy and
emissions levels. Thus, this study intends to contribute to filling a void in the
literature regarding the impact of ICT trade (a segment of net trade) on the energy
transition process and CO
2
emissions in the case of the BRICS economies.
ICT Trade and Energy Transition in the BRICS Economies 17
3 Research Methodology
3.1 Data and Variable Selection
To achieve the study’s goal, we use data from the BRICS economies spanning the
years 2000–2017. The data are gathered from the World Bank’s World Development
Indicators. Renewable energy consumption (as a percentage of total final energy
consumption) is the primary dependent variable for our analysis. To gauge CO
2
emissions, we utilize CO
2
emissions in metric tons per capita following the proxy
used by Yakubu et al. (2021a). ICT trade is measured as the percentage share of ICT
goods imports and exports in total imports and exports of goods. The study takes into
account the influence of foreign direct investment and economic growth, which
serves as control variables. All parameters are converted into the natural
logarithm form.
3.2 Model Specification
In line with Yakubu et al. (2021b), the following basic empirical models are
specified to scrutinize the effect of the regressors on renewable energy demand
and CO
2
emissions:
ln RENit ¼α0þβ1ln CT‐TRit þβ2ln FDIit þβ3ln GDPit þεit ð1Þ
ln CO2it ¼α0þβ1ln CT‐TRit þβ2ln FDIit þβ3ln GDPit þεit ð2Þ
where REN, CO
2
, ICT-TR, FDI, and GDP represent renewable energy consumption,
CO
2
emissions, ICT trade, foreign direct investment, and economic growth in a
specific country i at period t, respectively. εdenotes the error term.
3.3 Analytical Strategy
The dynamic ordinary least squares (DOLS) method is used to estimate the models.
This approach is suitable for modeling long-run relationships as well as handling
endogeneity problems in panel analysis. Also, compared to other panel cointegration
techniques, the DOLS technique has enhanced asymptotic properties regarding bias
in variable estimation and standard errors (Funk, 2001).
18 I. N. Yakubu et al.
4 Empirical Results and Discussions
4.1 Stationarity and Cointegration Tests
To determine whether or not the series are stationary, the unit root features of the
selected variables are explored prior to the models’estimations—this process aids in
minimizing erroneous regression. To examine the variables’unit root features, a
number of approaches have been developed in the extant literature. The Fisher
Augmented Dickey-Fuller (ADF) and Phillips–Perron (PP) panel unit root tests
techniques are employed in this study to evaluate the series unit root status. The
results of the tests are reported in Table 1. Regarding the ADF test, renewable energy
consumption and ICT trade are stationary at levels. In addition to renewable energy
and ICT trade, FDI also shows stationarity when the unit root is examined using the
PP test. In all, carbon dioxide emission and GDP are stationary at first difference for
both ADF and PP tests. Nonetheless, all the variables are stationary at first difference
with the same methods of unit root tests. It is worth noting that the traditional OLS
technique is not suitable for our model estimation given the difference in stationarity
level of the variables as postulated by the results of the unit root tests. As a result, the
DOLS approach proposed by Kao and Chiang (2001) is applied in this research.
Prior to estimating the model, it is essential to assess the long-run relationship
amid the selected variables in the study. In doing so, we invoke the panel
cointegration test by Kao (1999). The test result is also shown in Table 1. The
cointegration test indicates a long-term association amid the selected variables, thus
justifying the estimation of our model.
Table 1 Stationary and cointegration tests results
Unit root test
Level First difference
Variables ADF-Fisher PP-Fisher ADF-Fisher PP-Fisher
lnREN 15.857** 15.457** 13.746* 37.074***
lnCO
2
11.300 12.179 23.571*** 54.624***
lnICT-TR 20.351** 29.389*** 42.181*** 90.160***
lnFDI 11.558 20.405** 36.138*** 84.256***
lnGDP 13.286 12.651 17.222* 21.852***
Kao cointegration test
ADF t-statistic Prob.
2.607 0.005
Note: *, **, and *** denote the level significance at 10%, 5%, and 1% respectively
ICT Trade and Energy Transition in the BRICS Economies 19
4.2 Regression Results
Table 2presents the regression estimation from the dynamic OLS (DOLS). From
model 1, we estimate the long-run influence of ICT trade on renewable energy
consumption. It is glaring from the analysis that ICT trade openness exerts a
significant positive effect on the use of renewable energy. Precisely, on average, a
percentage growth in openness to ICT trade increases the demand for renewable
energy by 1.461%. Thus, it can be asserted that removing obstacles particularly
tariffs on the trading of ICT goods would be optimal for integrating renewable
energy resources into the energy grid of the BRICS alliance. In other words,
allowing the trade of ICT goods will enable members in the BRICS to adopt
sophisticated ICT products that can augment existing processes to enhance power
generation from renewable energy sources. This result sync with the findings of
Murshed (2020) who documented that ICT trade significantly promotes the renew-
able energy transition in South Asia.
For the control factors, we note that while foreign direct investment positively
enhances the use of renewable energy, economic growth inversely affects the
consumption of renewable energy. Nevertheless, the impact of these variables is
insignificant.
From model 2, we observe that ICT trade aids in reducing environmental
degradation by lowering the emissions of CO
2
as indicated by the negative relation-
ship between the two variables. Specifically, a percentage increase in ICT trade
reduces CO
2
emission by 1.262%. The finding suggests that liberalizing trade by
mitigating bottlenecks to the transfer of ICT products will ensure environmental
sustainability through the reliance on “green”technologies.
Our analysis also shows that FDI significantly contributes to reducing CO
2
emissions in the BRICS. As FDI surges by a percentage, CO
2
emission declines
by 0.686%. The finding indicates that FDI encourages the use of energy-efficient
technologies, which greatly lower energy consumption with a subsequent declining
impact on pollution. This result agrees with prior studies (Chang & Huang, 2015;
Table 2 DOLS estimation results
Variables Model 1 (Renewable energy) Model 2 (CO
2
emission)
lnICT-TR 1.461** 1.262***
(0.017) (0.006)
lnFDI 0.268 0.686***
(0.435) (0.000)
lnGDP 0.079 0.548***
(0.608) (0.000)
R
2
0.678 0.891
Adj. R
2
0.578 0.860
Notes: p–values are in parentheses; **, and *** denote the level significance at 5% and 1%
respectively
20 I. N. Yakubu et al.
Demena & Afesorgbor, 2020; Hao and Liu 2015; Huang et al., 2019; Zhu et al.,
2016).
Finally, the results indicate that economic growth significantly magnifies emis-
sion levels in the BRICS. The plausible implication is that as economic activities
upsurge, which includes industrial activities, the demand for energy also rises,
leading to more emissions in the atmosphere. The result is similar to earlier empirical
findings on the economic growth-emissions relationship (Chekouri et al., 2021;
Hassoun et al., 2018; Kahia et al., 2019; Khan et al., 2020; Osobajo et al., 2020;
Ridzuan et al., 2020).
5 Conclusion and Policy Recommendations
The quest to achieve a sustainable environment through transitioning from the
reliance on conventional energy sources to green energy resources has gained policy
attention globally. One of the means to realizing this objective is by lowering trade
barriers for easy movement of environmentally friendly technologies. In this chapter,
the researchers assessed how the boost in trade with respect to ICT goods accelerates
renewable energy transition in the BRICS nations. Using the dynamic OLS tech-
nique with data covering from 2000–2017, our findings report that ICT trade
openness exerts a significant positive influence on renewable energy utilization
and a significant negative effect on emissions of CO
2
. The results clearly postulate
that increasing trade of ICT products promotes the demand for renewable energy and
mitigates environmental pollution, which supports the clean energy agenda of the
BRICS. We note that FDI aids in reducing CO
2
emission though the influence on
renewable energy demand is insignificant. Economic growth is reported to aggravate
environmental pollution in the bloc.
In light of the results, sound policy initiatives must be implemented to expedite
the flows and transfer of ICT products in the BRICS countries. This will not only
support a successful energy transition through the reliance on renewable energy but
will also help in averting environmental pollution. In advancing this study, future
research may consider examining how openness to the trade of ICT products can
enhance energy transition efforts for each of the countries in the BRICS to ascertain
any significant variability in the results.
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24 I. N. Yakubu et al.
Features of the Emergence and Functioning
of the Energy Uncertainty Management in
Russia
Georgy Shilin and Henrik Zsiboracs
1 Introduction
Instead, the association put forward a slightly different idea, namely, to set a certain
percentage of deductions—0.2% of the amount of funds raised by a banking
institution. For the most part, it was this group of factors that became the main
obstacle to the formation of a full-fledged, independent, and working energy risk
insurance system over the next few years (Fang et al., 2021; Qiu et al., 2020). But
even considering the existing disagreements, the Russian government still seriously
understood the importance of forming such a fund. As an example, the Government
represented by the Ministry of Finance objected to the financial participation of the
Government and the State in the formation of the project’sfinancial energy risk
insurance fund. As for the Central Bank of the Russian Federation, it was strictly
opposed to the fact that the fund had broad control powers in relation to banks.
In the initial version of the legislative draft, it was noted that the fund has the right
to both receive and request reports from banks, as well as to receive information
about bank operations. The authority of the fund to carry out projects in relation to
participating banks and make recommendations to banks aimed at improving the
financial situation was also indicated. There was almost no support from large
commercial banking institutions, and among the arguments against the system, the
most basic was the argument that banks did not understand at all why and why they
needed to pay for smaller banking institutions. Another argument against the
G. Shilin (*)
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
H. Zsiboracs
Circular Economy University Center, Renewable Energy Research Group, University of
Pannonia, Veszprém, Hungary
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_3
25
formation of energy risk insurance was put forward directly by supporters and
representatives of liberal models of economic development (Li et al. 2020; Zhou
et al., 2021). Proponents noted that the less the government and the state participate
in the economy, the better it will be for the economy itself. They also adhered to the
theory that the market can regulate any situation on its own, and the withdrawal of
less competitive banks from the market is more a good sign than a bad one.
Perhaps the most common mistake made by the initiators of the legislative project
was their proposal to form energy risk insurance as a self-regulatory organization
that exists independently of the state. The role of the State, according to the proposal
of the initiators, was limited only to making an initial contribution.
2 Literature Review
Of course, the Russian Government sharply criticized this proposal, because in this
case it would have lost control over the entire system and given the fund the same
powers that the Central Bank of the Russian Federation had (Alwaelya et al., 2021;
An & Mikhaylov, 2020,2021; An et al., 2019a,2019b,2020a,2020b,2020c;
Dooyum et al., 2020; Grilli et al., 2021; Gura et al., 2020; Mikhaylov, 2020a,
2020b,2020c,2021a; Mikhaylov & Tarakanov, 2020; Mikhaylov et al., 2021a,
2021b; Moiseev et al., 2020,2021; Morkovkin et al., 2020a,2020b; Mutalimov
et al., 2021; Varyash et al., 2020; Yumashev & Mikhaylov, 2020; Yumashev et al.,
2020; Zhao et al., 2021).
The government was also not happy with the fact that the income of the formed
fund will be created by redistributing the profitable financial resources received from
raising money from projects (Candila et al., 2021; Denisova et al., 2019; Huang
et al., 2021a,2021b; Meynkhard, 2019,2020; Mikhaylov, 2018a,2018b,2022;
Mikhaylov et al., 2019; Nyangarika et al., 2019a,2019b).
In addition, the name “Federal Fund,”as well as the key parameter of activity
(we are talking about insurance), are unacceptable for state-level figures. Against the
background of not fully formed and not perfect legislation, as well as the lack of state
control and supervision of banking institutions, the economy, as well as the social
psychology of society, was seriously damaged (An et al., 2021; Danish et al., 2020,
2021; Dayong et al. 2020; Ivanyuk, 2018; Ivanyuk & Berzin, 2020; Ivanyuk &
Levchenko, 2020; Ivanyuk & Soloviev, 2019; Ivanyuk et al., 2020; Lisin, 2020;
Mikhaylov et al., 2018; Mukhametov et al., 2021; Nyangarika et al., 2018;
Uandykova et al., 2020; Uyeh et al., 2021).
Damage to public psychology and economics was inflicted in 1994–1995, which
resulted in serious losses of citizens from the work of financial and investment
organizations that periodically hid behind the license of a banking institution or
did not have any license at all (Bhuiyan et al., 2021; Conteh et al., 2021; Dorofeev,
2020; Dong et al., 2021; Liu et al., 2022; Mikhaylov, 2021b; Radosteva et al., 2018;
Ranjbar et al., 2017; Rathnayaka et al., 2018; Saqib et al., 2021; Sunchalin et al.,
2019; Udalov, 2021; Yüksel et al. 2021a,2021b,2021c).
26 G. Shilin and H. Zsiboracs
It may well be that the facts described above were one of the main reasons that at
the end of 1995, namely on November 24, the State Duma adopted the Law during
the second and third readings. The law concerns compulsory insurance of citizens
‘energy risks to banks. Within the framework of this legislative project, it was
planned to form a federal-level energy risk insurance fund on a mandatory basis
(Mikhaylov, 2018c; Mikhaylov et al., 2019; Melnichuk et al., 2020; Nie et al., 2020).
What is important, this legislative act did not apply in any way to such a banking
institution as Sberbank of the Russian Federation. However, in this case, the
legislative act that was adopted by the State Duma also did not find sufficient support
in the Ministry of Finance, the Federation Council, and the government. And the
reasons for the lack of sufficient support were about the same. The difference was
also in the fact that this time Sberbank also spoke out against the idea. But, even with
this in mind, the provisions of this legislative project eventually turned into the
standards of the modern energy risk insurance system of the Russian Federation.
The presented law provides for mandatory insurance of energy risks (Cheng et al.
2020; Haiyun et al., 2021; Liu et al. 2021a,2021b; Yuan et al., 2021; Zhe et al.,
2021). The law signed by the head of state allowed commercial banking organiza-
tions to independently form funds for voluntary money insurance. But, even con-
sidering these features of the legislative project, no noticeable actions were taken on
it by banking institutions in this case.
This initiative has literally become a pilot project implemented at the regional
level and promotes important ideas on the formation of energy risk insurance in
Russia. If you look at the national history, you can see that such an action on the part
of the mayor’soffice was more peculiar PR-yes, because due to the lack of funds and
financing in general, the fund could only pay money to pensioners. Important for the
story is the incident that happened on May 16, 1996, in the SBS (Capital
Savings Bank).
This banking institution, dealing with the registration of monetary energy risks
for individuals, began to issue certificates of a well-known domestic organization
engaged in insurance activities on a free basis. The issued certificate gives its owner
a guarantee of return of all those funds that are available in the banking institution.
This service was introduced almost at the same time by a Municipal bank in
Novosibirsk, and a little later, other banks adopted the same practice. Such a
certificate was issued to an individual for 3 months, and the project, if it wanted
to, could attract its own funds both to increase the amount and to extend the
insurance period.
3 Methods
SBS, as a means and method of security, transferred a large package of government
securities to the insurance company. On March 27, 1998, the Central Bank of the
Russian Federation issued an important directive concerning additional measures
aimed at protecting the interests of clients of banking institutions. This directive
Features of the Emergence and Functioning of the Energy Uncertainty... 27
noted that from July 1 of the same year, any restrictions related to the maximum
amount of attracted financial energy risks were lifted for banks that are financially
stable. Also, in relation to these banks, such a standard as N11 was canceled.
Within the framework of the directive, banks were given a unique opportunity to
expand, that is, to develop and increase the retail network, as well as to improve the
overall quality of financial services provided. At the same time, in order to protect
the financial interests of projects of those banks that were not stable, both restrictions
and complete bans on attracting citizens ‘financial resources were introduced. In the
period from 1995 to 1997, you can observe the maximum activity associated with
the purification, structuring, and quantitative reduction of the system of banking
organizations. For example, in 1995, the Central Bank personally revoked over
220 licenses, the next year—over 280, and a year later—more than 300 licenses.
That is, the Central Bank revoked an average of 3 licenses in 2 days, which is much
more in number than the same activity of the Central Bank of the Russian Federation
but carried out after the default that took place in 1998. However, this number of
closed institutions and branches was still less than the number of emerging ones and
adding banks at the peak of issuing issued banking licenses (for example, in the early
1990s, the Central Bank issued two such licenses every day).
In the spring of 1998, in April, there was an active discussion concerning the
organized legal form of those organizations whose activities are related to the
guarantee of financial energy risks. A special sub-committee of the State Duma,
whose activities related to banking legislation, noted the importance of establishing
non-profit organizations. But the Central Bank, for its part, noted that it is necessary
to establish a non-bank credit organization in the form of a closed joint-stock
company. At the same time, the organization must obey the Central Bank. During
one of the subsequent amendments to the legislative draft, Sberbank was officially
excluded from the general system for guaranteeing personal energy risks, which also
affected those branches and branches that were located outside the Russian Feder-
ation. Sberbank itself was given the status of a state-owned bank during the
amendments.
In 1998, on August 17, the country experienced a well-known devaluation of the
ruble, and it was during this period that the protests of banking institutions related to
the creation of a working system for guaranteeing financial investments began to
increase, and contributions were no longer paid. The following year, the first in the
new millennium, the system for guaranteeing financial energy risks from this
approach officially began its work. We are talking about an agency that deals with
the restructuring of credit institutions and organizations, which was not only
presented as a state-owned one, but also turned into a real guarantor for the return
of money from those banks that were also under the control of the insurance
company. Such moves on the part of the government led to an increase in energy
risks up to 17% per month, compared to the previously existing 9%.
In March 2000, the International Monetary Fund was also able to prepare a
detailed recommendation on financial deposit insurance and crisis management.
The fund in this recommendation is to form a specific management company,
represented as a state special agency engaged in insurance of energy risky funds.
28 G. Shilin and H. Zsiboracs
This agency, according to the fund, should have quite serious and extensive powers,
such as the power to use tough sanctions against non-viable or uncompetitive banks,
limit the interests of shareholders, and discount requirements for deposits without
insurance. Together with this instruction, it was also proposed to assign these and
other powers not to a new and newly created organization, but to an existing and
proven structure, that is, this approach.
4 Results
It is worth noting that the year 2000, despite many different discussions related to the
law, still did not give any sufficiently noticeable results. Then in the same year,
another legislative project appeared in the State Duma, namely in its banking
committee, but this time “On energy risk insurance on a mandatory basis.”For the
most part, this legislative act differs from the rest by the active participation of
insurance organizations in the overall existing energy risk insurance in Russia.
Thanks to the new draft law, credit institutions were able to accept energy risks
only if energy risks pass through the mandatory insurance process. At the end of
2000, Ingosstrakh JSC was able to obtain a license for activities related to insurance
of energy risks of funds transferred to banking institutions. However, these initia-
tives have not been able to receive a sufficient response and subsequent
development.
The following year, 2001, the process of creating laws related to energy risk
insurance seemed to be restarted, and they were restarted with renewed vigor. One of
the ideas that received support concerns the use of such an approach as a guarantor,
because it is precisely with this approach that contributions for which money would
be taken from the budget could be avoided.
Another decision of the same time was to extend the processes of connecting
Sberbank to the general guarantee system existing in Russia, and this process was
supposed to stretch for about 10 years, or exactly until Sberbank lost the title of a
monopoly bank, and other commercial banks began to cause the same confidence in
their reliability.
At the same time, a decision was made according to which only those banks
whose work and activity in financial terms were the most stable can exist and operate
in the market of civil monetary energy risks (Jun et al., 2021; Kou et al., 2021;
Silahtaroğlu et al., 2021). In June, the State Duma, as part of the next reading, still
adopted a law amending the law on bank bankruptcy. These amendments concerned
the rights to be exercised in the event of a bank’s bankruptcy.
In the draft law and amendments to this law, it was noted that the period for
issuing money in the event of bankruptcy can be reduced from a couple of years to a
couple of months. The amendment also gave a certain employee, namely a bank-
ruptcy trustee, when working with bankrupt banks, the opportunity not to wait for
the entire amount to be returned, but to withdraw it and give it to projects in parts.
Features of the Emergence and Functioning of the Energy Uncertainty... 29
And, although 2002 could not boast of any results or achievements, at the end of
2003, during one of the final meetings of the State Duma of the next, third
convocation, deputies put forward and adopted a project on energy risk insurance
in Russian banks. And at the end of December of the same year, the Head of the
Russian Federation signed a federal law on insurance of energy risks of citizens in
banking institutions.
Two thousand and four was the fastest year for energy risk insurance. In
February, the Board of Directors of the Energy Agency was able to select the
management board, and set a general, fixed and equal percentage for all quarterly
contributions to the energy Agency’s assistance fund. At the same time, the Energy
Agency began accepting applications from banking institutions to join the energy
agency. By the spring of the same year, the Central Bank of the Russian Federation
received more than 50 applications, and by that time, there were 1151 banks in
Russia that accepted energy risks, and the first 50 banks contained 87% of citizens
‘energy risks.
In April, the energy agency became part of the International Association of
Insurers. The agency also officially announced its readiness to register banks if
they are subject to verification by the Central Bank of the Russian Federation. At
the same time, another crisis occurred, which caused the bankruptcy of many banks
of various scales. An example is Sodbusinessbank, where energy risk insurance has
not yet been applied in bankruptcy, and the media has started to create panic among
citizens.
The law on bankruptcy of credit institutions has also partially changed. The
amendments noted that all banks that have become part of the system for insuring
monetary energy risks receive a liquidator in the form of an energy agency. The
Energy Agency will monitor and control the process of how exactly the owners of
bankrupt banks will settle accounts with creditors. In the autumn of the same year,
26 banks became part of the insurance system. The total amount of their deposits
became equal to 25 billion rubles. On December 10, the State Duma adopted several
amendments to the Federal Law on energy risk insurance. The amendments gave the
government the right to issue loans necessary to ensure sufficient financial stability
of the energy agency.
At the end of September 2005, the admission of banking institutions to energy
risk insurance was officially completed. Two hundred and thirty seven banks were
not included there. In 2007–08, the situation of banks and the system seriously
deteriorated amid the crisis. The number of insurance claims and bank failures began
to increase rapidly, which led to an increase in the burden on energy agencies.
Finally, in 2015, decisions were made regarding the maximum amount of compen-
sation. Since April, another method of insuring accounts calculated for transactions
related to the purchase and sale of real estate objects has been introduced. Here, the
maximum refund was limited to ten million. In June, the mechanism for differenti-
ating rates on insurance contributions of banks to energy risk insurance funds on a
mandatory basis began its work.
30 G. Shilin and H. Zsiboracs
5 Conclusions and Discussion
Summing up the study of the history of the formation, formation, and development
of energy risk insurance in Russia, we should draw several conclusions:
Problems related to projects are of interest to all parties and structures of the
banking sector, but at the very last moment or in turn. Low interest in project
problems caused the law on insurance to be formed for 10 years. The problems
were more political than economic in nature.
Organizations that insure energy risks are necessary in any financial sector, and
the source of filling systems and organizations is the finances of participants.
Therefore, the energy agency already works in the territory of the Russian Federa-
tion, for example, in non-state pension funds.
An important point is the differentiation of minimum contributions to insurance
funds, and here you need to start from the financial performance indicators of each
individual bank. It is important to keep in mind that large banks do not have to pay
for small ones.
Compensation schemes should be unified for all funding participants.
The energy risk insurance is a set of measures that protect energy risks and
guarantee their return (both in full and in part). Energy risk insurance in its education
adheres to several fundamental principles: transparency in the implementation of
activities; accumulative nature, which is achieved through constant contributions;
mandatory participation; reducing the level and magnitude of risks for projects if
banks did not fulfill their obligations in emergency cases. Many countries have a
system to protect their financial health and interests. It is one of the most important
social tasks. Energy risk insurance is mandatory in any member State of the
European Union. As an example, energy risk insurance operates on the territory of
Brazil, the USA, Japan, as well as on the territory of the CIS countries-Armenia,
Ukraine, Kazakhstan, and others. On the territory of Russia, the creation of energy
risk insurance is associated with the need to: solve the constitutional priority tasks of
the state related to the protection of citizens ‘rights and guaranteeing their peace of
mind; create prerequisites for raising the overall level of insurance coverage. Peo-
ple’s trust in banks.
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36 G. Shilin and H. Zsiboracs
Are Changes in Electricity Production
Perpetual or Temporary: An Evidence from
Emerging Countries
Ahmet Arif Eren, Orhan Şimşek, and Zafer Adalı
1 Introduction
The topics of detecting energy consumption stationarity properties have been
underlined a massive discussion in the literature, at least for the following impor-
tance. Initially, shock will have temporary impacts on energy businesses if the
energy consumption is stationary at the level; in other explanation, a transitory
departure from energy consumption’s long-run course resulting from any shocks
or policies experienced in the energy markets will be reported. Nevertheless, when
the energy consumption includes a unit root, it can be claimed that shocks will have a
power deviating the energy consumption from its long-run trend path (Hasanov &
Telatar, 2011). The stationarity properties of the energy consumption perform a vital
position in forecasting the future energy demand and determining the energy poli-
cies. Regarding the forecasting, if the energy consumption does not follow path
dependence or hysteresis, meaning no unit root in energy consumption and produc-
tion, it is probable to anticipate future energy consumption movements or production
by examining its past behavior. In addition to the failure of the estimation, the
existence of a unit root in energy consumption or production is required to design
the policies and targets to increase renewable energy and decrease nonrenewable
energy (Mishra & Smyth, 2014). As for the renewable energy policies, the existence
of a unit root signifies that the long-standing policy implications are recommended to
implement because the positive shocks based on the perpetual policy changes,
A. A. Eren
Department of Public Finance, Niğde Ömer Halisdemir University, Niğde, Turkey
e-mail: ariferen@ohu.edu.tr
O. Şimşek · Z. Adalı(*)
Department of Economics, Artvin Coruh University, Artvin, Turkey
e-mail: orhansimsek@artvin.edu.tr;zaferadali@artvin.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_4
37
including the renewable portfolio standard, will permanently impact renewable
energy consumption and production. The implication for the nonrenewable energy
sources works in the reverse direction if the nonrenewable energy sources include a
unit root. Suppose the presence of the unit root in the nonrenewable energy resource
is found. In that case, the policies aiming to reduce nonrenewable energy sources
contrary to the policies promoting renewable energy sources will permanently
impact the outcomes (Tiwari & Albulescu, 2016). Assuming the inexistence of
unit root in the nonrenewable energy sources, the policies purposing to shrink
nonrenewable energy consumption will be ineffective (Smyth, 2013). Briefly, it
can be implied that if shocks to energy consumption are determined as temporary
as a result of the investigation for the unit root process, a stabilization energy policy
seem to have no permanent impacts. Hence, the government’s policy should not be
adopted as irrelevant points (Hsu et al., 2008).
1
In addition to theoretical frameworks, a growing amount of empirical works have
been endeavored to investigate the issue of the stationarity features of energy series.
The knowledge of the stationary of the energy series provides insight information
used to design and implement the energy policies along with forecasting future
production and demand. ELP has been one of the most attention energy indicators
since human development, economic growth, and economic development depend on
sustainability access to electricity. Besides, the type of ER used for generating EL is
also a significant matter for economic development. Current estimation displayed by
BP statistical review of World Energy (2020) shows that NRER generate approxi-
mately 63.3%of total ELP worldwide. Usage of NRER induces environmental
degradation experienced as floods, drought, diminishing biological diversities. Envi-
ronmental degradation has been one of the shining out issues in both developed and
developing countries because ecological degradation has significant repercussions
on the planet and the sustainability of economic development. Therefore, sustainable
Development Goals (SDGs) have been established within this scope to prevent
environmental disasters and sustain the development and growth objectives (Işık
et al., 2021). UN General Assembly in September 2015 shows the essence of
Sustainable Development Goals (SDGs), and many world leaders have been in
common consensus which environmental sustainability should become the center
of the development plan to protect the ecosystem, sustain the adequate quality of
natural resources, and prevent diminishing the variety of plant and animal species
(UNEP, 2015).
1
Later, in the study, renewable energy signifies RE, renewable energy resources signify RER;
renewable energy consumption signifies REC; renewable energy production signifies REP;
nonrenewable energy presents NRE; nonrenewable energy resources signifies NRER;
nonrenewable energy consumption indicates NREC; nonrenewable energy production denotes
NREP; electricity means EL; electricity consumption denotes ELC; electricity production ELP;
energy consumption EC; energy production EP; energy resources denote ER; nuclear energy
denotes NE; nuclear energy consumption NEC; natural gas consumption denote NGC; oil con-
sumption refers OC; coal consumption signifies CC.
38 A. A. Eren et al.
Within this concerning sustainable objectives, in the study, we investigate the
stationary properties of ELP for 1971–2015 from oil, gas, and coal (% of total) for
six emerging countries where rapid urbanization and higher economic performance
are observed. The first,
2
second-generation panel unit root test and newly panel unit
root tests with sharp shifts and smooth breaks are employed, and all data is achieved
from World Bank (2021) DataStream. Regarding our best knowledge, the study
provides insight evidence for policymakers to design the energy policies in several
ways. Initially, employing three types of panel unit root provides robust evidence for
energy variables’stationarity properties. In the light of the evidence, the countries
considered can follow common energy policies. In addition, new panel unit root tests
with sharp shifts and smooth breaks also show the univariate unit root test result for
each country generating panel data and structural breaks. Within this knowledge,
policymakers from each country can design their energy policy.
2 Literature Review
Concerning environmental degradation, the scenarios of exhausting NRER and the
energy-imported countries’efforts of the alternating ER overcome the issues gener-
ated by energy dependence; renewable energy seems to be the only solution to
overcome the problems mentioned earlier. However, adequate knowledge about the
RER movement is required to determine the implication to increase the number of
RER. Therefore, various investigators have been endeavored to ascertain the features
of RER’series. For example, Wang et al. (2016) concentrate on the stationary
property of non-fossil energy in Japan for the period 1965–2011. The univariate
and panel Lagrange Multiplier unit root is applied along with the Fourier-type
Lagrange Multiplier test to detect the stationary situation of the variables. The
empirical evidence affirms a difference between the stationary properties of NE
and RE. The change in NEC exposed from any shocks is permanent; in other
explanation, NEC contains unit roots. In opposition, the fluctuations in REC are
concluded as permanent. Lean and Smyth (2013) try to determine the integrated
order of the REP and biofuels and biomass in the US by using the LM univariate unit
root test, supporting detecting two structural breaks. According to the findings, it is
indicated that each series contain a unit root. Yilanci and Tunali (2014) employ a unit
root test based on a Fourier function capability of detecting the unknown nature of
structural breaks to analyze whether any shocks can deviate the EC per capita in
109 countries. From its trend path. The analysis results confirm that energy demand
management or other surprises do not change the EC per capita for 25 countries.
Demir and Gozgor (2018) analyze the stationary properties of REC in 54 countries
by using the Narayan–Popp unit root test with two unknown breaks. As a result of
2
Later, in the study, the first-generation panel unit root tests and the second-generation panel unit
root test signify FirstGPUT and SecGPUT, respectively.
Are Changes in Electricity Production Perpetual or Temporary: An Evidence... 39
the analyses, it is emphasized that RE demand policies permanently impact nine
countries of the considered countries. Basher et al. (2015) employ individual and
panel unit root tests to determine the stationary properties of renewable ELP to ELP
in 19 OECD countries for 1990–2012. The empirical evidence affirms that the effect
of the shocks on the renewable share of EL output seems to be permanent in 17 of the
19 countries. Tiwari and Albulescu (2016) use the flexible Fourier stationary test
improved by Becker et al. (2006) and the recent advanced Fourier ADF test to test
the stationary properties of the renewable-to-total ELC ratio belonging 90 countries
for 1980–2011. The finding from the first test shows that the stationary of the
renewable-to-total ELC ratio for 65 countries located in different geographic areas
is detected. In contrast, the second test shows that shocks permanently influence all
countries’EC except for the UK. Gozgor (2016) adopts three types of unit root tests
allowing for one structural break, two structural breaks, and more than two structural
breaks, in turn, to analyze whether the fluctuations in REC have temporary or
permanent appearances in three crucial developing countries. The result of the
tests shows that REC includes a unit root in Brazil. In contrast, the fluctuations in
REC in China and Brazil are found as temporary. Barros et al. (2013) prefer to
disaggregate REC into hydropower, geothermal, solar, wind, wood, waste, and
biofuels to examine the degree of time persistence in the US. Innovative fractional
integration and autoregressive model are applied on monthly data covering the
period 1994:02–2011:10. The result underlines that disaggregated REC is accepted
as a better measure to forecast future trends because of persistence components. A
similar data approach is also administered by Aydin and Pata (2020) in terms of
disaggregated REC for the US. Wavelet-based unit root test with smooth structural
breaks is applied, and it is found that the appearance of the energy policies aimed to
change the REC is permanent without hydropower and biofuels energy
consumption.
Oil has been one of the leading energy sources globally, and nearly 40% of the
world’s energy mix is provided by oil. Oil is a NRER and one of the most known
culprits regarding environmental degradation. That is why the investigation for the
stationarity properties of OC becomes an important research topic for implementing
efficient energy and economic policies. Solarin and Lean (2016) prefer linear and
nonlinear unit root tests to detect fluctuations in OC’s appearance in 57 countries for
the period covering 1965–2012. They reach much evidence that the validity of
nonlinearity in the series is affirmed for 21 countries, and the presence of the
nonstationary is confirmed for 38 countries. Briefly, policies designed to reduce
OC in the countries considered will become powerful. Although various studies have
been attempted to detect the effects of natural gas consumption on several macro-
economic fundamentals in the literature, the investigation for the stationary features
of NGC has been received limited attention. Indeed, determining the NGC stationary
level plays a vital role in the proper management of NGC because natural gas
provides 22% of EL and 20% of the industry’s energy demands. Shahbaz et al.
(2014,2015) effort to review the stationarity characteristics of NGC in 44 countries
for 1965–2010 and 48 countries for 1971–2010, respectively. The first study finds
that the null hypothesis cannot be accepted in 57% of the considered countries. In
40 A. A. Eren et al.
contrast, the second study indicates that NGC in more than 60% of the selected
countries is not stationary. The effects of CC on the environment have generated
colossal awareness in the public, policymakers, and environmentalists, and the
policies aiming to reduce CC have been accepted as consensus. On the other hand,
like other disaggregating studies based on NRER, there is little investigation to
determine coal consumption’s stationary properties in the literature. Shahbaz et al.
(2014) seek to detect whether the variations in CC per capita have temporary or
permanent appear in developed and developing countries. LM unit root test with one
break and Crash model with two breaks are used. As a result of the models, it is
implied that energy management policies do not play an important role in CC in
almost all considered countries because CC can return to its trend path. Tang et al.
(2018) try to detect the decline in CC in China is temporary or permanent by using
the logarithmic mean Divisia index method (LMDI), and the study confirms the
validity of the permanent behavior in decline in CC.
As ELC is one of the leading EC, its management and policies aimed to increase
its efficiency become a critical policy agenda for policy makers. The investigation
for the stationarity properties of the ELC is vital like other investigations for other
types of ER as Economic growth and development rely on sustainable access to
EL. For example, Kula et al. (2012) utilize the Lagrange Multiplier (LM) unit root
test to endogenously detect structural breaks to investigate the stationary properties
of ELC per capita in 23 OECD countries selected in terms of high-income classifi-
cations. As a consequence of the test, it is claimed that the past behavior of the ELC
per capita in almost all OECD countries will be used to forecast its future pattern
because the unit root null hypothesis is rejected for 21 countries. Shahbaz et al.
(2013) analyze whether the fluctuations in ELC per capita of 67 developed and
developing countries are temporary or not, utilizing Lee and Strazicich's (2004) unit
root test and Lagrange Multiplier (LM) test for 1971–2010. The evidence of the tests
indicates that ELC per capita in 65 countries can return its trend path. Bolat et al. use
the individual unit root test with structural breaks improved by Carrion et al. (2005),
allowing for cross-sectional dependence and multiple structural breaks to determine
the stationary properties of ELC per capita in 16 European countries for 1960–2009.
The evidence of unit root test with intercept-no trend confirms that the null hypoth-
esis of stationary can be accepted except for six countries comprising Belgium,
France, Germany, Greece, Luxembourg, and Sweden. In contrast, the test result with
intercept and trend affirms that the stationary of ELC seems to be not rejected except
Luxembourg. All in All, it is concluded that the appearance of the shocks to ELC per
capita is a temporary impact for 15 countries; in other words, ELC tends to return to
its time trend. Khraief et al. (2016) apply a univariate and panel unit root test to
analyze whether ELC in Sub-Saharan Africa countries contains a unit root for
1971–2013. In addition to the conventional panel unit root test involving FirstGPUT
and SecGPUT, the LM panel unit root rest improved by Im et al. (2005) is also
employed, and the model’s result poses any events affecting ELC seem to be
powerless. Dogan (2016) analyzes the appearance of the shocks on ELC utilized
by sector in Turkey. The EL data is based on 12 regions of Turkey by four regions
and total ELC by region involving 60 cases. The evidence indicates that 48 cases
Are Changes in Electricity Production Perpetual or Temporary: An Evidence... 41
contain a unit root, which means that energy management can play a vital role in
changing ELC.
Regarding the literature, great studies are trying to reach useful knowledge for the
stationarity properties of the energy sources. In this study, we concentrate on the
ELP from oil, gas, and coal (% of total) in six emerging countries considering data
techniques like Basher et al. (2015), Tiwari and Albulescu (2016) by using newly
panel unit root tests with sharp shifts and smooth breaks along with FirstGPUT and
SecGPUT. The importance of EL for urban and industrialization needs for emerging
countries and the more useful knowledge resulting from the econometric techniques
may execute an essential role in expanding the existing literature.
3 Results
The result section covers the findings of the three types of the panel unit root tests:
FirstGPUT and SecGPUT, and a panel root test that allows for considering both
sharp and smooth breaks introduced Bahmani-Oskooee et al. (2014). All three types
of panel unit root tests are employed to investigate whether the impacts of the shocks
on ELP from NRER are temporary or permanent. Before conducting the panel
stationarity tests, Cross-sectional dependence (CD) tests involving Breusch-Pagan
LM, Pesaran Scaled LM, Bias-Corrected Scaled LM, and Pesaran CD (2004) are
carried out. The result of the tests is reported in Table 1Panel A. According to the
finding, the existence of CD is found.
FirstGPUT involve Levin et al. (2002), Breitung (2001), Im et al. (2003),
ADF-Fisher, and PP-fisher. The result of FirstGPUT tests is reported in Table 1
Panel B. According to Table 1Panel B, it is concluded that the electricity production
from oil, gas, and coal is not stationary; in other words, it contains a unit root.
However, FirstGPUT tests are exposed to significant drawbacks without regarding
the effects of CD. SecGPUT are an improved model of FirstGPUT because they
consider the cross-sectional dependence. SecGPUT test improved by Pesaran (2004)
is carried out in this study. The result poses that the effects of the shocks on ELP in
emerging countries are permanent. FirstGPUT and SecGPUT imply that ELP from
oil, gas, and coal in the emerging countries has unit roots; in other words, it is not
stationary. The energy management policies aimed to reduce ELP from NRER will
be effective.
Nevertheless, there is also some drawback related to SecGPUT. They do not
consider structural breaks. Various studies focus on sharp structural breaks to
investigate the properties of the fluctuations in the energy, but smooth breaks are
received less attention by just limited studies. A newly proposed panel unit root test
for sharp and smooth structural breaks introduced by Bahmani-Oskooee et al. (2014)
is employed. The cross-sectional independent among the variables is required to
conduct panel unit root tests considering structural breaks. Still, Table 1for the result
of the CD tests poses that there is a CD. Bahmani-Oskooee et al. (2014) offer that the
method introduced by Maddala and Wu (1999)‘s producer is used to overcome this
42 A. A. Eren et al.
drawback. The bootstrap procedure of Maddala and Wu (1999) with 1000 replica-
tion is carried out to achieve the critical values. Therefore, the conclusion of the
panel stationary test introduced by Bahmani-Oskooee et al. (2014) is reported in
Table 2Panel A. The KPSS statistics for the homogenous and heterogeneous tests
are lower than the critical values at the 10% significance level, implying that the
stationary null hypothesis for six emerging countries is accepted. In other words,
ELP from oil, gas, and coal sources is stationary. Panel B in Table 2presents the
results of a univariate version of the stationary test. The critical values for the
univariate version are measured using a Monte Carlo simulation with 1000 replica-
tion. Thus, the null hypothesis of stationarity is rejected at the 10% significance level
for three countries: China, Indonesia, and India. In contrast, the null hypothesis of
the stationarity test cannot be rejected for Brazil, Mexico, and Turkey. These results
emphasize that the fluctuations in ELP or the effects of the shocks on ELP from
NRER are temporary for Brazil, Mexico, and Turkey; whereas, the effects of the
shocks on ELP from NRER are permanent for China, Indonesia, and India.
According to the achieved results from all panel unit root tests, it can be argued
that ELP from NRER contains unit roots as a result of FirstGPUT and SecGPUT.
This result implies that energy management policies purposed to reduce NRER share
seem to be effective. Nevertheless, the result of the panel stationarity tests with sharp
shifts and smooth breaks indicates that ELP from NRER cannot respond to the
energy policies aimed to diminish the share of the NRER in ELP because the result
Table 1 The finding of cross-sectional dependence and first-second generation panel unit root tests
Panel A: Cross-sectional dependence tests
Variables Breusch-
Pagan LM
Pesaran
scaled LM
Bias-corrected
scaled LM
Pesaran
CD
Electricity production from oil, gas,
and coal sources (% of total)
142.2798
(0.000)
22.14257
(0.000)
22.07439
(0.000)
8.826020
(0.000)
Panel B: First and second-generation panel unit root test
Variables First-generation
panel unit root test
Second-
generation
panel unit
root test
Common unit root
process
Individual unit root process Pesaran
CADF
Levin,
Lin
&Chu
Breitung Lm,
Pesaran
and Shin
ADF-
Fisher
PP-
Fisher
Electricity produc-
tion from oil, gas,
and coal sources (%
of total)
1.89843
(0.9712)
2.66504
(0.9962)
1.56552
(0.9413)
8.75434
(0.7238)
15.1551
(0.2331)
0.836
(0.798)
D(Electricity pro-
duction from oil,
gas, and coal sources
(% of total))
7.78035
(0.000)
5.16783
(0.000)
8.94619
(0.000)
90.0122
(0.000)
257.175
(0.000)
7.121
(0.000)
Are Changes in Electricity Production Perpetual or Temporary: An Evidence... 43
Table 2 Panel unit root tests with multiple sharp breaks
Panel A: Panel unit root test
Number of cross: 6.0000
Time period: 1971–2015
Number of replication: 1000
Maximum number of breaks: 2.0000
Maximum number of frequencies: 5.0000
Stat. 90% 95% 97.5% 99%
Homogeneous Panel KPSS Test 2.1445
(0.9840)
0.8993 1.2984 1.7724 2.2049
Heterogeneous Panel KPSS Test 2.0295
(0.9788)
0.5500 0.3030 0.0497 0.3340
Panel B: Univariate unit root test and multiple breaking dates
KPSS Test 90% 95% 97.5% 99% Multiple breaking dates
Brazil 0.0369 0.1128 0.1476 0.1889 0.2442 2011.0000 0.0000
China 0.1616 0.1499 0.1822 0.2204 0.2624 1990.0000 2011.0000
Indonesia 0.1021 0.1009 0.1333 0.1709 0.2065 1977.0000 1995.0000
India 0.1105 0.0813 0.0989 0.1309 0.1585 1984.0000 1994.0000
Mexico 0.1325 0.1432 0.1864 0.2278 0.2598 1977.0000 2000.0000
Turkey 0.0982 0.1609 0.2062 0.2658 0.3325 1974.0000 1998.0000
Panel C: The results for optimum frequency and f-statistic and its critical values
F-Stat 90% 95% 97.5% 99%
Brazil (1) 24.7728 2.4486 3.2177 4.2783 5.5166
China (4) 8.3743 2.4532 3.2528 4.0672 5.3204
Indonesia (4) 6.1633 2.5167 3.3886 4.0680 5.3259
India (1) 5.9975 2.4505 3.2250 4.2643 0.1585
Mexico (4) 7.8619 2.4873 3.4247 4.1903 0.2598
Turkey (4) 3.1885 2.5270 3.3166 4.2247 0.3325
44 A. A. Eren et al.
of the panel statistic for the homogenous and heterogeneous show that ELP from
NRER is stationary. As for the univariate version of the stationary test, the temporary
effects of the shocks on ELP holds for Brazil, Mexico, and Turkey; while, the
permanent effect is valid for China, Indonesia, and India. The difference leads to
unique energy management policies among the countries. The energy implementa-
tion used to diminish the share of the NRER in ELP is recommended for China,
Indonesia, and India.
Besides, Panel C in Table 2confirms that all F statistics belonging to countries are
higher than the critical values, leading to the null hypothesis’s rejection. Therefore,
the trigonometric variables are significant, which implies that both the sharp and
smooth breaks model can be used for all variables. The global energy crisis that
occurred in the 1970s and the 1980s is experienced in Indonesia, India, Mexico, and
Turkey due to the multiple breaking dates. However, China has experienced multiple
Breaking Dates occurring in the 1990s and the 2000s, named the massive industri-
alization and the increase in the urban development in China. In these periods,
energy demand for urban needs and industrialization in China seem to induce
multiple breaks.
4 Conclusion
ELC has been one of the most crucial development indicators. Economic growth and
development objectives place reliance on an adequate and stable supply of EL; all in
all, EL is a requisite figure in every side of human life. Although sustainable access
to EL becomes irreplaceable steps for economic development, types of energy
sources providing EL have been another essential point. In the world, generating
EL from NRER accounts for approximately 63.3% worldwide. NRER are the main
culprit for environmental degradation experienced around the world. CO2 emis-
sions, marine pollution, and habitat destruction are the detrimental effects of NRER,
harming sustainable development goals. In addition, NRER are ultimately subordi-
nate to run out of fatefulness. Regarding the damaging effects of NRER, EL
generation from RER has become irreplaceable to achieve development objectives.
Within this aim, the investigation for the stationary properties of ELP provides
insight information for policymakers to design and implement energy policies. For
example, if ELP generation from NRER contains unit roots, any shocks from energy
policies will permanently impact ELP. However, if ELP does not involve unit root;
in other explanation, the variable restores to its trend route in the aftereffect of
shocks, the energy policies will have a transitory impact on ELP. In contrast, the
presence of the stationary can be used in formulating forecasting. Within these
objectives, the study investigates ELP from oil, gas, and coal (%of total) in six
emerging countries to reach a piece of knowledge concerning stationarity character-
istics of the considered variable.
Employing FirstGPUT and SecGPUT and a newly improved panel unit root test
allowing for considering sharp shifts and smooth breaks introduced by
Are Changes in Electricity Production Perpetual or Temporary: An Evidence... 45
Bahmani-Oskooee et al. (2014) investigate the unit root characteristic of ELC from
NRER (% of total) for six emerging countries over the period 1971–2015. The
results of FirstGPUT and SecGPUT found that the ELP from NRER involves unit
roots, which implies that shocks will have a power deviating the ELP from its long-
run trend way. The policymakers can adopt defined target levels regarding the share
of ELP from NRER. The energy management policies aimed to decrease the
percentage of NRER in ELP will be effective. Nevertheless, the result of the panel
unit root test introduced by Bahmani-Oskooee et al. (2014) indicates that homoge-
nous and heterogeneous tests are not higher than the critical values, which presents
the stationary hypothesis for six emerging countries. According to these implica-
tions, any shock-generating energy policies will temporarily impact ELP, which
follows its long-run trend. Moreover, the univariate version of the stationary result
for each country shows that the rejection of the null hypothesis holds for China,
Indonesia, and India. In contrast, the acceptance of the null hypothesis is found for
Brazil, Mexico, and Turkey. According to this finding, it is not recommended for six
emerging countries to follow standard energy policies. Therefore, China, Indonesia,
and India have a policy tool to diminish the share of NRER in ELP because the
energy policies will have a long-lasting impression on electricity production.
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Financial Evaluation of Energy Investments
in Russia
Elizaveta Ibragimova and Nora Baranyai
1 Introduction
Recovery from the mandatory energy Risk insurance Fund of the Agency’s obliga-
tions arising in connection with the Agency’s failure to fulfill its obligations to pay
compensation for deposits is carried out only based on a judicial act. The Mandatory
Energy Risk Insurance Fund is formed at the expense of the additional bid and the
increased additional bid will be determined depending on several factors. Starting
from January 1, 2016, in addition to this risk assessment component, the bank has
introduced a financial stability component: the bank is required to pay a higher
amount of insurance premium, the more its financial situation does not meet the
criteria defined by Law.
Insurance premiums are payable by the bank from the date of entering the bank in
the register of banks and until the day of revocation (cancellation) of the Bank of
Russia license or until the day of exclusion of the bank from the register of banks.
The introduction by the Bank of Russia of a moratorium on satisfaction of creditors’
claims suspends the bank’s obligation to pay insurance premiums for the duration of
the specified moratorium. At the same time, the bank is obliged to pay insurance
premiums for the settlement period during which the specified moratorium was
introduced, including the day preceding the introduction of this moratorium. Billing
period for payment of insurance premiums This is the calendar quarter of the year.
E. Ibragimova (*)
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
N. Baranyai
Circular Economy University Center, Renewable Energy Research Group, University of
Pannonia, Veszprém, Hungary
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_5
49
To restore the mandatory energy risk insurance fund, the Agency’s Board of
Directors may raise the basic rate of insurance premiums. Insurance premiums are
calculated by banks independently (Li et al., 2020; Yuan et al., 2021). Payment of
insurance premiums is made within twenty-five days from the end of the billing
period by transferring funds to the Agency’s account with the Bank of Russia, which
accounts for the funds of the mandatory energy risk insurance fund.
•Penalties for late and/or incomplete payment of insurance premiums. Recovery of
monetary amounts of outstanding obligations of banks to pay insurance pre-
miums, as well as penalties, is carried out by the Agency in court.
•Funds and other property received from the satisfaction of the Agency’s claim
rights acquired as a result of paying them compensation for deposits. To ensure
the financial stability of the energy risk insurance system, the federal law on the
federal budget for the corresponding year establishes the right of the Government
of the Russian Federation to issue budget loans and borrow, the maximum
amount of these borrowings, as well as the maximum amount of corresponding
federal budget expenditures.
•Income from placement and (or) investment of temporarily available funds of the
mandatory energy risk insurance fund (Fang et al., 2021; Qiu et al., 2020; Zhou
et al., 2021). The directions, procedure, and conditions for placing and (or)-
investing temporarily available funds of the mandatory energy risk insurance
fund, as well as the maximum amount of temporarily available funds to be placed
and (or)invested, are determined annually by the Agency’s Board of Directors.
Temporarily available funds of the fund may not be used to purchase securities of
issuers in respect of which pre-trial rehabilitation measures are being implemented,
or bankruptcy proceedings have been initiated (supervision, temporary bankruptcy
management, bankruptcy proceedings), or such procedures were applied during the
previous two years.
•Initial property contribution.
•Other income that is not prohibited by the legislation of the Russian Federation. A
loan from the Bank of Russia may be one of the sources of forming an energy risk
insurance fund, as well as the Agency’s implementation of measures to improve
the financial health of banks.
2 Literature Review
If the Agency’s Board of Directors is unable to reimburse deposits without adding
additional funds to the mandatory energy risk insurance fund, the Agency’s Board of
Directors will make one of the following decisions within seven calendar days after
the insured event:
•Apply to the Government of the Russian Federation with a request to allocate
appropriate funds to the Agency in the form of a budget loan, if the deficit of the
50 E. Ibragimova and N. Baranyai
mandatory energy risk insurance fund calculated by the Agency’s management
board is not more than RUB 1 billion.
•Apply to the Agency’s Board of Directors for compensation of deposits without
adding additional funds to the mandatory energy risk insurance fund to the
Government of the Russian Federation with a request to allocate additional
funds to the Agency from the federal budget if the deficit of the mandatory
energy risk insurance fund calculated by the Agency’s management board
exceeds 1 billion rubles (Bhuiyan et al., 2021; Dong et al., 2021; Dorofeev,
2020; Grilli et al., 2021; Liu et al., 2022; Mikhaylov, 2021b; Moiseev et al., 2021;
Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka et al., 2018; Saqib et al.,
2021; Sunchalin et al., 2019; Udalov, 2021; Yüksel et al., 2021a; Yüksel et al.,
2021b; Yüksel et al., 2021c).
The Agency also has the right to apply to the Bank of Russia for a loan to
replenish the energy risk insurance fund for a period of up to five years. Control over
the functioning of the energy risk insurance system is carried out by the Government
of the Russian Federation and the Bank of Russia through the participation of their
representatives in the Agency’s management bodies (An et al., 2021; Conteh et al.,
2021; Danish et al., 2020,2021; Dayong et al., 2020; Ivanyuk, 2018; Ivanyuk et al.,
2020; Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020; Ivanyuk & Soloviev,
2019; Lisin, 2020; Mikhaylov et al., 2018; Nyangarika et al., 2018; Uandykova
et al., 2020; Uyeh et al., 2021).
Let us consider in detail the key principles and definitions on which payments to
affected citizens are based. These funds are placed by individuals in the selected
banking institution, based on an agreement drawn up earlier between the project and
the organization’s representative (Kou et al., 2021; Silahtaroğlu et al., 2021). It is
mandatory to include various percentages on the previously placed deposit amount
as an insurance item (Jun et al., 2021; Liu et al., 2021a,2021b; Melnichuk et al.,
2020; Mikhaylov, 2018c; Mikhaylov et al., 2019; Mukhametov et al., 2021; Nie
et al., 2020).
Items that do not relate to insured events include the following:
•Placement of foreign currency funds of individuals, in the framework of business
activities, without the necessary legal entity formation. Energy risks fall into this
category, provided that the necessary accounts are opened in full compliance with
the activities carried out (Cheng et al., 2020; Haiyun et al., 2021; Liu et al., 2021a,
2021b; Zhe et al., 2021).
•In cases where funds are placed on a deposit in the name of the bearer, and in
particular, if additionally, the data is verified by using a special certificate, or by a
savings book also issued to bearer.
•If the placement of energy risks is carried out directly outside the territory of the
Russian Federation, in various branches of Russian banks (Candila et al., 2021;
Denisova et al., 2019; Huang et al., 2021a,2021b; Meynkhard, 2019,2020;
Mikhaylov, 2018a,2018b,2022; Mikhaylov et al., 2019; Nyangarika et al.,
2019a,2019b).
Financial Evaluation of Energy Investments in Russia 51
The general list of insured events usually includes the following:
•Revocation or cancellation of the banking organization’s existing license pro-
vided for performing subsequent operations and servicing potential customers.
•If the Central Bank of the Russian Federation imposes a moratorium on subse-
quent satisfaction of claims issued to creditors of a banking organization. In terms
of time, the payment of compensation is carried out in accordance with the
existing register of obligations of the liquidated bank to its projects. In particular,
this is relevant within three days from the moment the project submits all the
necessary documents to the Agency (Alwaelya et al., 2021; An & Mikhaylov,
2020,2021; An et al., 2019a,2019b,2020a,2020b,2020c; Dooyum et al., 2020;
Gura et al., 2020; Mikhaylov, 2020a,2020b,2020c,2021a; Mikhaylov &
Tarakanov, 2020; Mikhaylov et al., 2021a,2021b; Moiseev et al., 2020;
Morkovkin et al., 2020a,2020b; Mutalimov et al., 2021; Varyash et al., 2020;
Yumashev & Mikhaylov, 2020; Yumashev et al., 2020; Zhao et al., 2021).
However, this payment can be made no earlier than two weeks (14 calendar days)
from the date of occurrence of the insured event provided for in the organization’s
regulations. By upon direct submission of the required set of documents to the
Agency, it is issued a corresponding extract from the created register of obligations
of the banking organization to its own projects, with a corresponding indication of
the total amount of compensation for previously located deposits. So that users can
be guided about the need to compensate for energy risks, it is planned to submit a
corresponding application in the Bulletin of the Bank of Russia. The place, time, and
order of admission are established in the relevant press directly at the bank’s legal
address. Applications and the corresponding data form defined by projects. Within
one month from the moment of receipt of the required register of obligations from
the banking organization, all necessary information is sent to projects on an indi-
vidual basis at the direct request of the recipient.
3 Methods
The project, its successor or legal successor (their representatives) may apply to the
Agency with the following request: a requirement on payment of compensation for
deposits from the date of occurrence of the insured event to the date of completion of
the insurance contract. Bankruptcy proceedings (forced liquidation), and if the Bank
of Russia imposes a moratorium on satisfaction of creditors’claims—until the day
when the moratorium expires. If the project (its successor, legal successor) misses
the deadline for filing a claim for compensation for deposits, the deadline for
submitting a claim for compensation for deposits is set by the project (its successor,
legal successor) to the application form the project (its successor, legal successor)
may be restored by a decision of the Agency’s Management Board in the presence of
one of the following circumstances:
52 E. Ibragimova and N. Baranyai
•If the application of the project (its successor, legal successor) with a claim for
payment of compensation for deposits was prevented by an extraordinary and
unavoidable circumstance under these conditions.
•If the project (heir) was (is) undergoing military service on conscription or was
(is) a member of the Armed Forces of the Russian Federation (other troops,
military formations, bodies) transferred to martial law, for the period of such
service (martial law).
•If the reason for missing the specified deadline is related to the serious illness of
the project (its heir), the helpless state of the project (its heir), the deadline for the
project heir to accept the inheritance, and other reasons related to the personality
of the project (its heir).
The decision of the Agency’s Management Board to refuse to restore the missed
deadline for filing a claim for payment of compensation for deposits may be
appealed the project (its successor, legal successor) to the court.
When applying to the Agency with a claim for payment of compensation for
deposits, the project, the heir, the legal successor (their representatives) submit: an
application for compensation for deposits in the amount of in the form of if an
individual applies, documents confirming his/her identity; if an heir applies, docu-
ments confirming his/her right to inheritance or the right to use the testator’s funds; if
a legal successor applies, documents confirming the transfer of the right to claim a
deposit to him/her; if a project representative, heir’s representative, or legal succes-
sor applies, a notarized power of attorney (except for a person authorized to act on
behalf of the project, heir, or legal successor without a power of attorney).
Payment of the actual refund is made directly on the application given by the
potential project, which is carried out both by transferring cash and by transferring
the requested amount to the account of another bank specified in the submitted
documents by the project. Acceptance of this application, as well as other documents
in the set required for obtaining material resources, is carried out by the Agency
through various agent banks that act directly on behalf of the project and strictly at its
expense. The refund is made for all deposits with the banking organization, if they
occur in the specified case, in the amount of at least 100% of the current deposit
amount. However, the maximum amount of compensation is also set, no more than
1,400,000 rubles. If the project has several separate energy risks on its account, this
refund is paid pro rata for each of the specific bank energy risks. If the funds were in
a foreign currency, therefore, when making compensation payments, they are
converted into rubles, at the current exchange rate.
4 Results
Therefore, in whatever currency the deposit is placed, payments are made only in the
national currency, namely in rubles of the Russian Federation. Special attention
should be paid to reimbursement of funds in a situation where the bank acted as a
Financial Evaluation of Energy Investments in Russia 53
lender in relation to a specific project. The amount of compensation in this case is
calculated based on the difference between the current amount of debt obligations to
the project and the established amount of the counterclaim. To apply, the project will
need to contact the appropriate Agency, or any selected agent bank, if it is
established that it is involved in subsequent payments of the established compensa-
tion for previously made deposits. The right to do so is valid from the immediate day
of the occurrence of the case, until the nominal moment when the bank’s bankruptcy
is considered to have taken place. The same applies to cases when the Central Bank
of Russia establishes a moratorium.
A separate insurance indemnity, the maximum amount of which is up to ten
million rubles, is paid:
•On an escrow account opened for settlements under a real estate purchase and sale
transaction.
•On the escrow account opened for settlements under the contract of participation
in shared capital construction.
•When funds are credited to the project’s accounts from the sale of an apartment,
residential building and land plot under it, garden house, and other buildings.
•Inherited funds, insurance, and social payments, as well as benefits and compen-
sations, funds transferred by a court decision, grants in the form of subsidies.
Account holders, bank clients who have a power of attorney to receive insurance
payments, as well as individual entrepreneurs, small and medium-sized businesses
are entitled to insurance payments. It is important that they are listed in the unified
register and heirs at the time of the insured event. If the client has several deposits in
different banks, the refund is paid for each deposit in proportion to their size. If the
deposit was made in dollars, euros, yen, etc., the currency will be converted into
rubles at the exchange rate of the Central Bank on the day of the insured event and
compensation will be paid.
There are cases when a client opens several different types of energy risks in the
same bank. What should I do with paying a refund in this situation? The Central
Bank will count these deposits as one deposit, and recalculate the compensation
based on their total amount. If the deposits were placed in the bank’s branches, the
same measures are applied to them. Therefore, it is worth placing deposits in
different banks, so as not to face such a deplorable situation.
Further, we note the problems of the Russian energy risk insurance system. In
modern conditions, the actions of the Central Bank of the Russian Federation, which
are aimed at “improving”the banking sector, lead to an increase in insurance claims.
The number of banks whose licenses are being revoked by the Bank of Russia is
constantly growing. The process of forming a fund takes time, while the Bank of
Russia implements an active policy of revoking licenses. Currently, there is only one
way to solve this problem—lending by the Bank of Russia to the energy Agency
under special conditions. Also, a problem is that not all commercial banks are
included in the energy risk insurance system, thus projects have risks of
non-return of funds in the event of an insured event.
54 E. Ibragimova and N. Baranyai
Currently, there are many problems that are associated with fraud in the field of
energy risk insurance: fragmentation of energy risks, artificial formation of energy
risks to illegally obtain insurance compensation (fictitious energy risks). In Russia,
there is no deposit insurance for legal entities, which leads to significant losses of
corporate funds. This problem can be solved in several ways: the introduction of
mandatory deposit insurance for the corporate sector within certain limits (like
energy risk insurance for individuals) and the development of voluntary deposit
insurance for the corporate sector. Within the framework of the general financial
illiteracy of the population in the Russian Federation, there is also a problem of
illiteracy of citizens in the field of insurance, including energy risk insurance.
The high interest rates that attract investors often hide risks that are associated
with financial instability, and subsequently the upcoming bankruptcy of a commer-
cial bank. Clients have little knowledge of the real financial situation of credit
institutions. So, the financial basis of energy risk insurance is the foundation of the
mandatory energy risk insurance (Fund), at the expense of which compensation
payments are made for deposits and expenses related to by an organization payout.
5 Conclusions and Discussion
In today’s market economy, one of the keyways to save money is a bank deposit.
Through energy risks, temporarily available funds are mobilized in the banking
system and their further transformation into productive investments, which makes it
possible to provide consumer loans to the population and satisfies the banking
system’s need for fixed and working capital. To maintain socio-economic interests
and a high level of public confidence in this method of saving in most major
countries, there is an energy risk insurance system that ensures the stability of the
banking system and public confidence in financial and credit institutions.
In a market economy, large financial and credit organizations are required to
ensure the safety of energy risks and timely fulfillment of their obligations to
projects. The return of citizens’energy risks through compulsory insurance is
guaranteed in the event of revocation (cancellation) of the Central Bank of the
Russian Federation of the license of the bank where the deposit was placed or
after the introduction of a moratorium on meeting the claims of other creditors of
the bank. Since 2003, energy risk insurance for individuals in banks of the Russian
Federation has been provided by the Energy Insurance Agency.
Commercial banks regularly pay insurance premiums in the amount of 0.1% of all
deposits to energy agencies. Thus, customers do not personally make an additional
payment for deposit insurance, and this obligation is performed by the bank at the
basic, additional, or increased additional rate based on the current legislation.
According to the legislation of the Energy Risk Insurance Agency, funds placed
on the accounts of individuals of a commercial bank are subject to insurance, and an
insured event on deposits with the bank occurs after the relevant decision is made by
the Central Bank of the Russian Federation.
Financial Evaluation of Energy Investments in Russia 55
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60 E. Ibragimova and N. Baranyai
Strategic Talent Perception in the Energy
Sector
Gizem Topsakal Acet and Pelin Vardarlıer
1 Introduction
Globalization and today’s competitive environment have brought the importance of
the internal resources of organizations to the forefront much more. As the resource-
based view demonstrates, businesses need to focus on internal resources and manage
them effectively and efficiently to provide competitive advantage. One of the most
important internal resources of organizations is human. It is also important to place
the right people at the right time and in the right place to achieve strategic goals and
survive in a competitive environment in the long term (Al Ariss et al., 2014). On the
other hand, finding and attracting talented employees has become difficult for
organizations. However, organizations also face problems in creating a suitable
business environment for the new talented generation (Farndale et al., 2010).
Recruitment and talent acquisition can be compared short term and long term.
Both approaches can be used depending on the circumstances. However, by its
recruitment nature, tactics tend to be strategic in acquiring talent (Sparrow &
Makram, 2015). For this reason, the concept of strategic talent stands out.
Strategic talent management has become a key business activity and a critical
decision area for managers due to the lack of talent available in businesses. Strategic
talent management requires strategic focus on its own. Therefore, it is difficult for
any business management to achieve success in the long run, regardless of what kind
of capabilities the business needs. Therefore, strategic talent management needs to
be maintained by businesses (Sparrow & Makram, 2015). In addition, it is important
G. T. Acet
Bahçeşehir University, Istanbul, Turkey
P. Vardarlıer (*)
School of Business, İstanbul Medipol University, Istanbul, Turkey
e-mail: pvardarlier@medipol.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_6
61
for businesses to acquire talented employees, to keep these employees in their hands
and to replace those who quit their jobs to make the competitive advantage of the
business sustainable. In this context, businesses should attach the necessary impor-
tance to strategic talent management and integrate it with human resources pro-
cesses. Accordingly, the aim of the research is to examine the perspectives of the
enterprises on strategic talent management and to determine the level of these
strategies in the enterprises.
Within the scope of this study, it focused on the field of energy sector. When we
look at the researches analyzing the current situation of the energy sector, it is seen
that one of the most important problems in this field is the inadequacy of institutional
resources and human capacity (Bogomolova, 2018; Hussaini & Majid, 2014;
Markovska et al., 2009). There are two views on the role of human resources in
the sustainable development of the energy sector. One is the impact of the energy
sector on the social dimension, and the other is the impact of human resources on
know-how technologies and innovation in the field of energy (Angheluțăet al.,
2014). Accordingly, it is important to manage the right human resources for the
energy sector. Indeed, the lack of long-term investment in the new energy capacity
has led to a lack of training and transfer of technical knowledge in the development
of qualified workforce in the energy sector (Markovska et al., 2009). Sustainability is
one of the most prominent issues in the energy sector (Qi et al., 2020). At this point,
it should be sustainable in its capabilities. It will be useful to ensure that people
acquire the right skills through vocational training programs in the development of
human capacity (Muda et al., 2017; Smits et al., 2014). Therefore, the importance of
developing strategic capabilities in enterprises is critical. After identifying the
perspectives of enterprises on strategic talent perception, suggestions for the subject
were included.
2 Literature Review
Strategic talent management research has been reviewed to provide important
information about under-discovered themes, topics, theories, and methods in
the field of strategic talent management. In this context, Shet (2020) mentioned the
perspectives of organizational stakeholders on strategic talent management. With the
study, it was concluded that strategic talent management practices in organizations
are beneficial in achieving the goals of organizations. In the study conducted by
Borisova et al. (2017), the main approaches to the adoption of strategic talent
management approach in managers were examined theoretically. According to the
results of the research, it was seen that the implementation of strategic talent
management in companies would enable companies to increase the efficiency of
their motivation programs.
Karadal (2019), on the other hand, discussed the concept of talent management at
the theoretical level, which brings a new vision to strategic human resources
management. As a result of the research, it was determined that the organizations
62 G. T. Acet and P. Vardarlıer
that apply talent management managed to be different from their competitors with
the confidence in the products they produce and the services they provide. According
to the results of the study conducted by Anlesinya et al. (2019), strategic talent
management can be used to achieve positive results at the organizational and macro
level. However, the realization of these positive outcomes is that talent management
strategies can be threatened with a variety of challenges that need to be addressed in
fulfilling critical conditions for their success. Accordingly, it is possible to say that
the success of an effective talent management strategy should be under the collective
responsibility of multiple stakeholders, not on the shoulders of a single individual.
In another study, Schreuder and Noorman (2019) argued that traditional strategic
talent management practices cannot lead to organizational excellence. As a result of
the research, it was determined that strategic talent management should harmonize
and mutually strengthen business development and personal development to
increase strategic success. Sripirom et al. (2016) found that employee talent devel-
opment concentration had the strongest positive significant effect on strategic talent
management. In another study conducted by Benoy and Gracias (2015), how
businesses can improve the skills of existing project managers and use their expe-
rience and expertise to create a future talent pool was examined. According to the
results of the research, it was stated that the lack of strategic skills in managers may
lead to a lack of motivation among employees, delay or failure of projects, and may
cause high monetary losses in the organization.
In the study conducted by Chen et al. (2021), it was found that there was a
positive relationship between strategic talent management practices and work behav-
iors of employees. Smits et al. (2014) aimed to reveal the relationship between the
strategic talent management practices applied to the personnel in the Radiology
department and the success of the personnel. With the research, it was concluded that
80 of the 100 personnel who underwent strategic talent management were successful
and the success rate of strategic talent management was 80%. In the study conducted
by Ambrosius (2018), the relationship between different strategic talent management
practices and employees’intention to leave Brazil’s multinational companies was
analyzed. It was revealed that linear regression modeling and organizational support
and perceived career opportunities were negatively related to the intention of
Brazilian employees to leave, while education and development were positively
related. The study conducted by Cui et al. (2018) aimed to reveal how strategic talent
management is defined and understood by Chinese small and medium-sized enter-
prises (SMEs). Accordingly, the talent management and retention strategies used by
Chinese SMEs in the service sector were examined. It has been concluded that SMEs
have different views on strategic talent management. According to some, strategic
talent management means having the right candidate in the right business category.
The findings also show that a positive work environment, career development
opportunities, and a good wage are considered the best strategy to attract talent. In
another study, Sheehan et al. (2018) found that consistent strategic talent manage-
ment practices in the hotel and tourism sectors, especially competitive rewards and
training and development opportunities, would improve the brand and have a direct
impact on business quality. Another study by Kimathi (2015) examined how
Strategic Talent Perception in the Energy Sector 63
strategic talent management affected the performance of Imperial Bank Limited in
Kenya. Within the scope of the study, an interview was held with five department
managers at Imperial Bank. It has been concluded that the most common strategic
talent management practices used by Imperial Bank are performance-based reward
system, performance-based promotions, and training programs in terms of annual
bonus and salary increases. In another study, Lucie et al. (2016) focused on
approaches to the implementation of strategic talent management adopted by agri-
cultural and forestry companies. The results of the study show that 62% of enter-
prises operating in the agriculture and forestry sector are familiar with the principles
of strategic talent management and talent management is part of the mission of the
enterprise.
When the results of the studies are examined, it is seen that the enterprises attach
importance to the concept of strategic talent. Businesses know the value of talented
employees for their own vision and goals and make the necessary investment and
staff in this field. In addition, businesses support with features such as salary,
promotion, and benefits in order not to lose talented personnel. Although businesses
see the concept of strategic talent as an innovative and digital concept, most
businesses do not yet seem to have distinguished themselves sufficiently from
traditional talent policies. In the study conducted by Lucie et al. (2016), it was
found that 62% of the enterprises examined had knowledge about strategic talent
management. In this study, it was observed that the rate was close to 100%.
3 A Qualitative Research in the Energy Sector
3.1 Methodology
Within the scope of the research, it is aimed to reveal the perspective and usage areas
of strategic talent, which is a new term formed by strategic management and talent
management practices that have developed in enterprises in the last 10 years. The
preferred method for this purpose is the phenomenological model of the qualitative
research method. In this method, the concepts on a certain subject and the details that
make up this subject are investigated and in-depth information about the subject is
obtained. The research technique frequently preferred in the phenomenology model
is interview and observation. In this study, interview technique was used as quali-
tative research technique. Thanks to the interview technique, detailed information
was obtained about the strategic talent applications of the enterprises operating in the
energy sector in Turkey. During the evaluation of the data obtained in the research,
the NVIVO program was used. With NVIVO, researchers can group the data they
obtain in phenomenological research and combine them according to their similar
characteristics (Baş& Akturan, 2008). Therefore, the NVIVO program facilitates the
evaluation process for qualitative research in terms of providing the opportunity to
edit the data.
64 G. T. Acet and P. Vardarlıer
Companies in the energy sector (https://www.fortuneturkey.com) included in the
Fortune 500 research report, which listed the 500 largest companies in Turkey
published in 2020, were included in the study. An interview was conducted with
the managers and experts of 36 companies in the energy sector. The NVIVO package
program was used in the process of grouping the interview data according to similar
characteristics and exporting these groups in the form of a graph. Companies
participating in the research were given a number between COMPANY1 and
COMPANY36 for ease of coding.
Within the scope of the interview, firstly, demographic questions were asked to
the participants. In the light of the information obtained from the literature review,
the questions prepared for the interview were created in seven dimensions. These
dimensions are as follows:
•Questions asked to understand strategic processes in companies (1–5),
•Questions asked to understand the management model in companies (6–10),
•Questions asked to understand backup and career planning activities in compa-
nies (11–17),
•Questions asked to understand future planning activities in companies (18–20),
•Questions to understand leadership gaps in companies (21–24),
•Questions asked to understand activities to fill leadership gaps in companies
(25–29),
•Questions asked to understand companies’perspective on strategic talent
(30–32).
3.2 Scope of the Study
When the demographic information of the company representatives participating in
the interview is examined, it is seen that 19% of the participants are female and 47%
are male. In terms of marital status, 47% of the participants were single, and 42%
were married. When the ages of the participants are examined, it is seen that 58% are
in the 30–39 age group, 25% in the 24–29 age group, and 14% in the 40–49 age
group. The proportion of the participants in the 50–59 age group is 3%. 53% of the
participants had bachelor’s degree, 31% had a master’s degree, and 6% had a
doctorate degree. When the total work experience of the participants is examined,
it is seen that 33% of the participants have 6–10 years of work experience, 33% have
10 years of work experience and more. While the rate of those with 3–5 years of
work experience is 31%, the rate of those with less than 2 years of work experience is
3%. When the titles of the participants are examined, it is seen that 31% are
managers, 28% are team leaders, and 14% are senior experts.
Strategic Talent Perception in the Energy Sector 65
4 Conclusion and Discussion
There has been an increase in interest in talent management and strategic talent
management over the past decade. Many businesses are convinced that talented staff
are useful for their business and have begun to make various moves to attract
talented candidates and keep existing talented candidates in business. This has
highlighted the concept of strategic talent management. Within the scope of the
study, interviews were conducted with the managers of 36 companies operating in
the energy sector to understand the perspective of enterprises on strategic talent
management. In the interview, the workforce planning, talent planning, perspective
on strategic talent management, and the moves made by the enterprises to keep
talented employees in the business were evaluated.
When we look at the results of the research, it is seen that evaluations in
companies are usually made by meetings or statistical reports. While statistical
reports usually generate weekly and monthly controlled reports, meetings are usually
held weekly, periodically, and annually. When the time allocated by managers to
team career planning is examined, it is seen that some of the timing of career
planning is not certain and certain ones are realized monthly. The study conducted
by Benoy and Gracias (2015) states that such uncertainties lead to a lack of
motivation in the personnel. It is seen that labor force planning is in the form of
human resources investments in the majority of enterprises with labor force plan-
ning. In other words, it is seen that enterprises attach the necessary importance to
labor force planning. When the actions taken by the companies to protect the talents
with high potential are examined, it is seen that staff enrichment and training come to
the forefront. Considering the studies conducted by Ambrosius (2018), it is seen that
the intention of employees to leave can be prevented by training. In this context, it is
important for the enterprises examined to invest in education in order to protect their
existing talents. When the personnel backup plans of the companies are examined, it
is seen that most of the enterprises make backup with training programs. It has been
observed that training programs are usually in the form of determining the persons
who can act as proxies for the employees. When the studies of the companies for the
talents they contain are examined, it is seen that most of the companies work for
talents. These works are in the form of staff enrichment such as promotion and raise
in most companies. Sripirom et al. (2016) reached a similar conclusion in their study.
In this study, a significant relationship was found between personnel enrichment and
strategic talent management activities. It is seen that businesses emphasize the
training program and small managerial roles while gaining leadership qualifications
to their talents. Schreuder and Noorman (2019), on the other hand, stated that to
develop these leadership qualities, especially personal development trainings should
be focused. However, in this study, no conclusion was reached about the details of
the training programs. It is seen that the work done to adapt to the digital workforce
of the enterprises in the future is generally to follow current developments and adapt
to these developments. Many businesses adapt in terms of digital workforce. When
the leadership, functional and technical competencies required by the enterprises to
66 G. T. Acet and P. Vardarlıer
reach their corporate strategies are examined, it is observed that leadership qualifi-
cation is generally needed. In other words, it is seen that the issues that businesses
attach the most importance to within the scope of strategic talent management are
leadership. Smits et al. (2014) stated that leadership is seen as important in 80% of
the enterprises researched in strategic talent management. Evaluation of the compe-
tencies of talented employees of enterprises is usually in the form of periodic
evaluations. In other words, there is no comprehensive evaluation. Evaluations are
usually carried out through statistical reports. It is seen that most of the enterprises do
not have a competence guide. Businesses that do not have a competence guide state
that the competence processes proceed improvised and person based. When the ones
responsible for the loss of competent personnel in companies are examined, it is
generally seen that the responsible persons are managers and human resources units.
In addition, it is seen that talent management covers all personnel in enterprises. It is
seen that career planning is not only directed at managers in most businesses, but
also the personnel other than managers are involved in career planning processes. In
the study conducted by Anlesinya et al. (2019), it is stated that strategic talent
management should include all individuals instead of a single or a group of individ-
uals. When we examine what resources companies use for staff recruitment pro-
cesses, it is generally seen that internal and external resources are carried out in a
balanced manner. When the policies implemented by companies to keep talents in
the company are examined, it is seen that most of them are personnel enrichment
such as salary, promotion, and rights. Sheehan et al. (2018) argued that in addition to
these, creating a competitive environment would be successful in keeping talents in
the business. When the reasons for leaving the job of talented people in enterprises
are examined, it is seen that different job offers are the first reason. In other words,
the reason behind the resignation of talented personnel is that other companies offer
the most talented personnel rights such as better salary and benefits. Cui et al. (2018)
argue that a positive working environment and a good wage will increase the
likelihood of talented people staying in the current workplace. Therefore, businesses
can offer them a good working environment and make improvements in wage rates
to maintain their existing capabilities. When the answers given to this question,
which reveals the perspectives of enterprises on strategic ability, are examined, it is
seen that strategic talent is generally defined as moves towards the company’s goal
and vision. In other words, strategic talent is considered as the steps taken by most
enterprises to achieve the establishment purpose of the enterprise and to obtain a
competitive advantage. When the importance of the concept of strategic ability in
companies is examined, it is possible to say that the prominent elements are
sustainability, success, efficiency, ensuring workflow and accurate evaluation of
employees. Many of the participants argue that strategic talent plays an important
role in companies achieving a sustainable competitive advantage. Similar results
were obtained in the study conducted by Shet (2020). Shet (2020) states that strategic
talent management is useful in achieving the company’s goals. Similarly, in the
study conducted by Karadal (2019), it is stated that strategic talent management
contributes to the differentiation of the business from its competitors. On the other
hand, in a study conducted by Abubakar and Abdullah (2017), it was stated that
Strategic Talent Perception in the Energy Sector 67
strategic talent management would also contribute to businesses based on depart-
ments. In this study, no conclusion has been reached on contributing to the
departments.
The areas most emphasized by businesses within the scope of strategic talent
management were to ensure sustainable competition. According to the results of the
research, it is possible to define strategic talent management as activities and
processes that include the systematic identification of key positions that contribute
differently to the sustainable competitive advantage of the organization, the devel-
opment and development of a pool of high-potential and high-performance officials
to fill these roles.
Businesses that implement strategic talent management systems in accordance
with the vision of the business are likely to gain a sustainable competitive advantage.
In addition, it is seen that businesses do not show the necessary importance to keep
talents. In this context, preparing an appropriate work environment for talents and
increasing wages may increase the likelihood of retaining talents. Future research
may be on comparing the profitability of businesses that implement and do not
implement strategic talent management, or on examining strategic talent manage-
ment in certain sectors.
The energy sector is an area where competition is very intense. In this context,
energy companies need to take some actions to increase their competitiveness
(Haiyun et al., 2021; Li et al., 2020). Otherwise, it will be very difficult to survive
in such an environment. In this process, one of the important actions is to have
qualified personnel. Energy companies do a much more specific business than other
industries (Zhao et al., 2021; Zhong et al., 2020). Within this framework, the
personnel should also have knowledge about these specific issues. In this process,
human resources departments play a very important role. Persons to be employed in
the company in line with the needs must have the necessary knowledge (Cheng et al.,
2020; Yuan et al., 2021). On the other hand, due to operational processes, the risks
faced by energy companies are higher compared to other businesses. Therefore,
managers who will work in energy companies must have the necessary skills (Qiu
et al., 2020). In this context, energy companies should consider this issue while
employing managers (Liu et al., 2021). This situation is especially important for coal
and nuclear energy investments. There are significant risks in both types of energy
investments. In cases where these risks cannot be managed effectively, accidents
with very high damage may occur (Yuan et al., 2020). In this process, a great
responsibility falls on the managers of energy companies. In order for these risks
to be managed effectively, company managers must take timely action (Du et al.,
2020; Yüksel et al., 2020). Therefore, managers in energy companies need to be able
to cope with stress much more easily.
68 G. T. Acet and P. Vardarlıer
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70 G. T. Acet and P. Vardarlıer
Relationships between Energy Efficiency
on Output and Energy Efficiency on Carbon
Emission
Imran Hussain, Swarup Samanta, and Ramesh Chandra Das
1 Introduction
With the progress of globalization across the world, the countries from the devel-
oping zones are now increasingly dependent upon using their energy base to produce
more and contribute more to their gross domestic products. There are so many
channels such as industry and service activities through which energy use helps in
production activities. But there are several negative aspects to these energy uses.
Countries generate several pollutants and emit to the ambient environment which has
huge health cost due to environmental damage. Further, there are huge unnecessary
uses of energy as it does not contribute to the country’s output at its potential.
Therefore, there is a natural question on whether energy use has any sort of positive
effects upon the outputs of the economies from developing zones. This is particularly
important for developing economies of South-Asia region where per capita GDP of
this region [PPP (current international $4934.3)] is still much lower than that of the
low- and middle-income countries [PPP (current international $9211.8)] (World
Bank, 2014). However, it is exciting that the South-Asian nations are growing well
in recent years. In 2014, India experienced 7.4% annual GDP growth rate ranking the
country first, followed by Bangladesh with 6.1% GDP growth rate ranking the
country second, Nepal with 6.0% growth rate ranking the country third, and Sri
Lanka with 5.0% growth rate ranking the country fourth in the region. Pakistan
experienced the lowest GDP growth rate in the region which was 4.7% (World Bank,
2014). In spite of other important factors, economic growth is highly affected by
energy use. The data of World Bank says that the highly developing countries are
I. Hussain · S. Samanta
Research Scholar, Department of Economics, Vidyasagar University, Midnapore, India
R. C. Das (*)
Department of Economics, Vidyasagar University, Midnapore, West Bengal, India
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_7
71
now chasing the so-called developed countries in terms of energy use and atmo-
spheric pollution. Literature suggests that energy use which results in CO
2
emissions
play controversial roles towards economic growth [Cheng (1999), Chang (2010),
Rahman et al. (2020), Lu (2017), Vo et al. (2019), etc.]. The present study, under this
backdrop, aims to examine the long-run associations of ‘national output to energy
use’and ‘carbon emission to energy use’in five selected South-Asian nations: India,
Pakistan, Bangladesh, Sri Lanka, and Nepal for the period of 1971–2014 on the
World Bank data.
2 Review of the Existing Literature
Several studies on the relationship among the three variables are available from the
literature. Relevant studies are briefly discussed below for the present study. A recent
investigation based on extended neoclassical economic growth model was done by
Rahman et al. (2020) to expose the interconnection of carbon emissions, population
density, and trade openness on economic growth for five South Asian countries for
the period of 1990–2017 and shows that CO
2
emissions and population density
positively and significantly affect the economic growth permanently in South Asia
while trade openness affects economic growth negatively. There is a bi-directional
long-run causality between CO
2
emissions and economic growth and unidirectional
causal link running from population density to CO
2
emissions. Finally, there is a
unidirectional causal link running from labour to economic growth and population
density.
Li et al. (2016) calculated the degree of association among energy consumption,
environmental pollution, and economic growth by applying gray correlation analysis
for China. The study found that energy consumption motivates development of the
economy and causes environmental pollution. According to Chang (2010), eco-
nomic growth induces a higher level of energy consumption and CO
2
emissions. The
results demonstrate bi-directional causality running from GDP to CO
2
emissions and
secondly, electricity consumption to GDP. Another work on China by Zeng et al.
(2020) studied on the energy consumption, FDI, and development in Zhejiang, for
the period of 1993–2017. Long-run relationship exhibits among these variables. In
terms of short-term dynamic relationship, there was a strong positive relationship
between FDI and energy consumption. The result was consistent with the findings of
Zhao et al. (2007) and Latif et al. (2021). In contrast of this, energy consumption
played a strong positive impact on economic growth and is consistent. After China’s
accession to the WTO, a higher level of opening boosted the energy. The investiga-
tion of Wang et al. (2016) for the same country shows the existence of cointegrating
relationship among economic growth, energy consumption, and CO
2
during the
period of 1990–2012. A bi-directional causal relationship between economic growth
and energy consumption was emerged.
Yu and Hwang (1984) postulate the causality between GNP and energy con-
sumption for US by using time series data for the period of 1947–1979. The result
72 I. Hussain et al.
shows that there is no causal relationship between GNP and energy consumption.
The further result also exhibits of no causal relationship between per capita energy
and per capita GNP. The dynamic causal relationships between pollutant emissions,
energy consumption, and output are applied by Ang (2007) for France during the
period of 1960–2000. Using cointegration and vector error correction model, it
provided a result that variables are strongly inter-related and therefore their relation-
ship must be examined using an integrated framework. Similarly, Halicioglu (2009)
attempts to empirically examine the dynamic causal relationships among carbon
emissions, energy consumption, income, and foreign trade in Turkey for the period
of 1960–2005. For Iran, Taghavee et al. (2016)find out various socioeconomic
elasticities in the long run and short run during 1974–2012. The results based on per
capita CO
2
emissions, GDP, and energy consumption proved the strong elasticities
in the long run. Trade openness, labour force, and financial development play the
most leading role in the short run, even though their limited role in the long run.
Lee (2006) uses the causality testing procedure to examine the causal interplays
between energy consumption and GDP in the G-11 countries. Neutral causality is
observed in United Kingdom, Germany, and Sweden. Bi-directional causality exists
in the United States but unidirectional causality running from energy consumption to
GDP in Canada, Belgium, the Netherlands, and Switzerland. Similar study has been
done by Narayan and Smyth (2008) on G7 countries to examine the relationship
between capital formation, energy consumption, and real GDP using panel
econometrical methods. The result was that capital formation, energy consumption,
and real GDP are cointegrated and real GDP is positively influenced by capital
formation and energy consumption.
Akbostancıet al. (2009) arranged two types of data for 58 provinces of Turkey. In
the first stage, time series model covers 1968–2003, and the panel data model covers
1992–2001 in the second stage. According to time series analysis, a monotonically
increasing relationship between CO
2
and income exists in the long run. But the panel
data analysis shows an N-shaped relationship for SO
2
and PM10 emissions that does
not support the Environmental Kuznets Curve hypothesis. For the same country,
Ozturk and Acaravci (2013) investigated the causality between financial develop-
ment, openness, economic growth, energy consumption, and carbon emissions in for
1960–2007. Environment Kuznets curve hypothesis was validated in this economy.
On the contrary, short-run unidirectional causality exists from financial development
to per capita energy consumption and per capita real income. The similar hypothesis
was applied by Rahman (2017) to expose the relation between CO
2
emissions,
energy use, economic growth, exports, and population density for a panel of
11 Asian populous countries over the period of 1960–2014. The existence of
U-shaped relationship between real income and CO
2
emissions in the panel of
11 countries but the inverted U-shaped relationship is found only for the Philippines.
Furthermore, environmental quality is adversely affected by energy use, exports, and
population density in the panel of these countries in the long run. Another research
was done by Saboori et al. (2012) for Malaysia on Environmental Kuznets Curve
hypothesis. The result shows the existence of long-run relationship between per
capita carbon emissions and real per capita income. Saidi and Hammami (2015)
Relationships between Energy Efficiency on Output and Energy Efficiency on... 73
examined the effect of economic growth and CO
2
emissions on energy consumption
using a growth framework and simultaneous equation models. The results show that
the effect of economic growth on energy use is positive and statistically significant in
the global panel of 58 countries. Dinda et al. (2000) used panel data set of 88 coun-
tries over the period of 1960–1990 and found a long-run relationship between per
capita income and per capita carbon emission. The obtained results also suggest that
there exists a bi-directional causal relationship between these two variables for
Africa, Central America, America as a whole, Eastern Europe, Western Europe,
Europe as a whole, and the World as a whole.
Alkhathlan and Javid (2013) revealed a relationship among economic growth,
carbon emissions, and energy consumption in Saudi Arabia both in the aggregate
and disaggregate levels. Both the long-run and short-run income elasticities of
carbon emissions are negative for the gas consumption model. Using the same
variables, Ang (2008) shows the long-run association between output, energy, and
emissions in Malaysia during the period of 1971–1999. The observation was that
pollution and energy use are positively related to output in the long run. The
causality result shows that energy consumption growth is caused by economic
growth, both in the short run and long run. Similarly, Kais and Ben Mbarek
(2015) selected three North African countries—Algeria, Egypt, and Tunisia for the
period of 1980–2012. From the cointegration test results, they found a long-run
relationship between CO
2
emission and energy of the three countries.
Hossain (2012) explores the dynamic causal relationship between carbon emis-
sions, energy consumption, economic growth, foreign trade, and urbanization for the
period of 1960–2009 in Japan. In the short run, carbon emission is influenced by
both the energy consumption and trade openness, economic growth is affected by
carbon emissions, and trade openness is influenced by economic growth. It is also
found that in the long run, higher energy consumption leads to more carbon
emissions. Using modified version of Granger causality test, Menyah and Wolde-
Rufael (2010) conclude that nuclear energy consumption leads to increase in carbon
emissions without feedback in US during the period of 1960–2007. They show
econometrical evidence and suggest that nuclear consumption can help to reduce
carbon emissions, but so far, the renewable energy consumption has not reached a
level where it makes a significant contribution to emissions reduction. Rahman and
Kashem (2017) applied the ARDL Bounds Testing methodology in the case of
Bangladesh over the period of 1972–2011. Both the industrial production and energy
consumption significantly and positively impact the carbon emissions in the short as
well as long runs. The result shows the existence of a unidirectional causality
running from industrial development to CO
2
emissions, and industrial development
to energy consumption and energy consumption to CO
2
emissions.
74 I. Hussain et al.
3 Rationale of the Study
From the brief review of the existing literature, it is revealed that most of the research
works show the relationship of economic growth, energy used, and carbon emissions
separately. Since both the national income and carbon emissions simultaneously
depend on energy consumption, therefore, in this study, ratio form is taken to analyse
the proper relationship between ‘national output to energy used’and ‘carbon emis-
sion to energy used’. The first one represents average productivity of energy upon
GDP and the second one is average productivity of energy upon carbon emissions.
The present research study has three key variables: Gross Domestic Product
(GDP) as measured in current US$, Carbon emissions (CO
2
) as measured in kt.,
and the last variable is Energy used (kg of oil equivalent per capita). To show the
average productivity with respect to energy used, the present study takes ratio form
such as National Output to Energy Used (NOEU) and Carbon Emission to Energy
Used (CEEU). CO
2
emissions are those stemming from the burning of fossil fuels
and the manufacture of cement. They include carbon dioxide produced during
consumption of solid, liquid, and gas fuels and gas flaring. Energy use refers to
use of primary energy before transformation to other end-use fuels, which is equal to
indigenous production plus imports and stock changes, minus exports and fuels
supplied to ships and aircraft engaged in international transport.
The data from 1971 to 2014 regarding Energy used, GDP, and CO
2
are used in
the study is secondary annual data and is collected from World Bank (https://data.
worldbank.org). The present study is based on the hypotheses of testing the
cointegration and causality between average productivity of energy used upon
GDP (NOEU) and average productivity of energy used upon CO
2
(CEEU) for
different South-Asian nations.
Initially, Pearson’s correlation coefficient is used to investigate the degree of
association between NOEU and CEEU. Then time series econometric method is
used chronologically to verify the cointegration and causality between these two
variables. Augmented Dickey and Fuller (1979) test including m lags of the depen-
dent variable to correct any serial correlation in the disturbance term is used for test
of stationarity. The present research study selects the equation with intercept from
the three augmented models, which can be estimated and the null hypothesis H
0
:
δ¼0 can be tested by using a τ-statistic.
ADF test for NOEU:
ΔNOEOðÞ
t¼αþδNOEUðÞ
t‐1þXm
i¼1γiΔNOEUðÞ
t‐iþutð1Þ
ADF test for CEEU:
ΔCEEUðÞ
t¼αþδCEEUðÞ
t‐1þXm
i¼1γiΔCEEUðÞ
t‐iþutð2Þ
Relationships between Energy Efficiency on Output and Energy Efficiency on... 75
Where u
t
is a white noise error term. These equations incorporate difference terms
Δ(NOEU)
t1
¼(NOEU
t1
NOEU
t2
), Δ(NOEU)
t2
¼(NOEU
t2
NOEU
t3
), etc., the similar process is applicable for Eq. (2).
If the computed absolute value of the tau statistics (τ) exceeds the ADF or
Mackinnon critical values, we reject the null hypothesis that H
0
:δ¼0, in which
case the time series is stationary. The ADF test is based on the assumptions that the
error term is serially independent and has a constant variance. Thus, Phillips and
Perron developed a generalization of the ADF test procedure where no such restric-
tive assumptions on the distribution of error terms are there. The test regression
equation is same as mentioned in (Eqs. 1and 2) but the PP test makes a correction to
the computed τ-statistic of the estimated coefficient of δto account for serial
correlation in u
t
. Further, it has been shown that asymptotic distribution of the PP
τ-statistic is the same as the distribution of ADF τ-statistic. So, the ADF critical
values are still applicable here.
4 Methodology
Once confirmation of stationarity of the data series is obtained, the next step is to
check up whether the series are integrated or not, i.e. whether there exists of long-run
relationship between NOEU and CEEU. Engle and Granger (1987) provided a test to
examine the presence of cointegrating relationship (i.e. long-run relationship)
between the variables through the residual’s time series behaviour. The method
runs through the following steps:
Step I: If both variables are I(0), it is not necessary to proceed to test the
possibility of cointegration. Here one should continue with the OLS regression
analysis since standard time series methods are applicable to the stationary variables.
If the variables are integrated of different order, they are not cointegrated. If both the
variables are I(1), apply the OLS method to estimate equation [say, NOEU
t
¼α+b(-
CEEU
t
)+ε
t
] and generate the series of estimated residuals b
εt¼NOEUtb
a
b
bCEEUt
ðÞ.
Step II: For checking the stationarity of b
εt, ADF test is applied. The form of the
ADF test equation here is
Δb
εt¼δb
εt1þXm
i¼1αiΔb
εt1þvtð3Þ
Now testing the null hypothesis H
0
:δ¼0, we conclude whether b
εtis I(0) (i.e.
stationary) or not. When the H
0
gets rejected, our conclusion is that b
εt~
I0
ðÞ
and the
variables are cointegrated.
The cointegrating equation gives long-run relationships between the two vari-
ables. However, cointegrating equation does not shed any light on short-run dynam-
ics although its existence indicates that there must be some short-term forces that are
76 I. Hussain et al.
responsible for keeping the long-run relationship intact. This entails the construction
of error correction mechanism to model dynamic relationship. The Purpose of the
Error Correction Model is to indicate the speed of adjustment from the short run
equilibrium to the long-run equilibrium state. The equation is
ΔNOEUðÞ
t¼ϕþγΔCEEUðÞ
tþλb
εt‐1þηtð4Þ
Where γ¼Short-run coefficient, (measure the immediate impact of a change in
CEEU
t
will have on a change in NOEU
t
,λ¼error correction coefficient and shows
how much of the disequilibrium is being corrected, b
εt1¼error correction term.
Here b
εt1¼NOEUt1d
NOEUt1is one period lagged value of the error from the
cointegrating regression’η
t¼
white noise error term in the ECM. When b
εt1is
non-zero (positive or negative), there is disequilibrium in the short run. However,
equilibrium will be restored in the long run if and only if λ<0.
Granger (1969) was the first econometrician to offer a formal test of the direction
of causality between the variables. It is basically a statistical test. The Granger test
involves estimating the following pairs of equations:
NOEUt¼a1þXn
i¼1αiCEEUtiþXm
j¼1βjNOEUðÞ
tjþε1tð5Þ
CEEUt¼a2þXn
i¼1γiCEEUðÞ
tiþXm
j¼1δjNOEUðÞ
tjþε2tð6Þ
Where ε
1t
and ε
2t
are uncorrelated white noise error terms. The null hypotheses
are
H
0
≔α
i
¼0(i¼1, 2, ...., n) [For Eq. 5].
H
0
≔δ
j
¼0(j¼1, 2, ...., m) [For Eq. 6].
The test statistic
F¼RSSrestricted RSSunrestricted
ðÞ=m
RSSunrestricted=nkðÞ ð7Þ
If the computed-Fexceeds the critical-Fvalue [i.e. F
>F
λ
(m,n-k)], then reject
the H
0
and conclude that ‘CEEU Granger causes NOEU’(for Eq. 5)or‘NOEU
Granger causes CEEU’(for Eq. 6).
It is to note that if the variables are stationary in their first difference, we then
apply this test on the first differenced variables in (Eqs. 5and 6).
5 Empirical Results and Discussion
Before going into the econometric exercises, the study computes the degree of linear
associations between the two variables, NOEU and CEEU, for all the selected
countries. Then the econometric exercises follow. The correlation coefficient
Relationships between Energy Efficiency on Output and Energy Efficiency on... 77
between NOEU and CEEU for all the South-Asian nations under study is presented
in Table 1to see the degree of associations between the two across the countries in
the list.
From Table 1, it is clearly observed that the average productivity of energy upon
GDP and average productivity of energy upon CO
2
simultaneously increased during
the period of 1971–2014. As the energy is used in production process, GDP
increases and at the same time carbon emission also increases. Nowadays, it is a
crucial issue regarding the sustainable development for the nations. In this case
technological advancement plays an important role. This is because advancement of
technology leads to increment in productivity with reduction in use of energy. It is to
note that correlation results do not depict any sort of causal relations between the two
variables. Hence, the following econometric exercises are done. The unit root test
result (following ADF and PP test) in first difference and second difference of series
for South-Asian nations are given in Table 2. Here the null hypothesis, H
0
¼Series
has a unit root (Non-stationary series).
Series are non-stationary at levels in all the countries. The results conclude that
the series are in first difference/second difference form doesn’t have a unit root and
are stationary. It is found that the hypotheses of unit root for the series are rejected
under PP Test also. For India and Bangladesh, series are I(1). The cointegration
technique is applied for these two nations to justify the long-run relationship
between average productivity of energy used upon GDP and the average productiv-
ity of energy used upon carbon emissions. Pakistan, Sri Lanka, and Nepal have no
unit root in second difference, i.e. the series are I(2). The validation of long-run
relationship and short-run interplays for India and Bangladesh is shown in the
following section.
As mentioned in methodology, Engle and Granger (1987) make available a test to
examine the presence of cointegrating relationship between the variables. If both the
NOEU and CEEU are I(1) and the estimated residuals are I(0), then we may
conclude that there exists a long-run relation between them. Thus, ADF test is
conducted for India and Bangladesh to show whether the estimated residuals are
stationary in level or not.
The result shows that the residual series is stationary in level (the null hypothesis
of a unit root is rejected) for Bangladesh only. This implies that both the variables
NOEU and CEEU are cointegrated, i.e. the average productivity of energy used upon
Table 1 Correlation coeffi-
cient between NOEU
and CEEU Country
1971 to 2014
rt-stat Probability
India 0.9094 14.1699 0.0000
Pakistan 0.9405 17.9377 0.0000
Bangladesh 0.9021 13.5478 0.0000
Sri Lanka 0.8694 11.4030 0.0000
Nepal 0.9296 16.3456 0.0000
Note: r: Correlation Coefficient between NOEU and CEEU
Source: Authors’calculations
78 I. Hussain et al.
GDP and average productivity of energy used upon carbon emissions have a long-
lasting relationship between them. The variables are not cointegrated (no long-run
relationship between them) for India. This alternatively means that energy use is
making co-impacts upon both the national output and carbon emission in
Bangladesh, not in India. So, Bangladesh is considered for ECM estimation while
India is exempted to proceed for ECM estimation for the short run dynamics between
NOEU and CEEU. Since cointegration has become possible for Bangladesh, the
estimated Error Correction Model for this nation is
d
ΔNOEU ¼14:02463 þ0:445608 ΔCEEU 0:150459 resðÞ
t1
p:0:0050½0:1089½0:2991½
The coefficient of (res)
t-1
is desirably negative but insignificant. The negative
coefficient of (res)
t-1
implies the correction of short-term disturbance to the long-run
stable relationship between average productivity of energy used upon GDP and the
average productivity of energy used upon carbon emissions. The coefficient of (res)
t-
1
is 0.1504 which shows the speed of adjustment towards equilibrium. Here the
speed of adjustment is 15.04% annually. The result of ECM further concludes that
there is no presence of long-run causality from CEEU to NOEU. This implies
average productivity of energy upon GDP is not influenced instantly by average
productivity of energy upon carbon emissions in Bangladesh in the long run. This is
our final stage of investigation to show the causal interplays between NOEU and
CEEU for the countries in the short run. All the countries are taken for the analysis,
Table 2 Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) Test (1971–2014)
Country With intercept
India ADF PP Remarks
ΔNOEU 5.5215 (0.0000) 5.5294 (0.0000) Stationary in first difference
ΔCEEU 6.0633 (0.0000) 6.7024 (0.0000)
Pakistan
ΔΔNOEU 5.8814 (0.0000) 35.767 (0.0001) Stationary in second difference
ΔΔCEEU 10.171 (0.0000) 48.383 (0.0001)
Bangladesh
ΔNOEU 5.9058 (0.0000) 5.9093 (0.0000) Stationary in first difference
ΔCEEU 41.044 (0.0001) 40.688 (0.0001)
Sri Lanka
ΔΔNOEU 13.033 (0.0000) 19.501 (0.0001) Stationary in second difference
ΔΔCEEU 6.0908 (0.0000) 32.579 (0.0001)
Nepal
ΔΔNOEU 6.1128 (0.0000) 12.366 (0.0000) Stationary in second difference
ΔΔCEEU 7.4938 (0.0000) 29.995 (0.0001)
Note: tau statistics, τ-value is denoted by minus figured value and P-value is in first bracket, ‘Δ’and
‘ΔΔ’the series are in first difference and second difference, respectively
Source: Authors’own calculations
Relationships between Energy Efficiency on Output and Energy Efficiency on... 79
but the exercise and interpretations of the results depend upon the orders of integra-
tions of the two series across the countries. The results are presented in Table 3.
The results clearly show the existence of bi-directional causality between NOEU
and CEEU in India and Pakistan. This implies variables are mutually dependent to
each other, i.e. average productivity of energy upon GDP is influenced by the
average productivity of energy used upon carbon emission and at the same time
average productivity of energy used upon carbon emission is influenced by the
average productivity of energy upon GDP. In other words, when GDP increases
due to use of energy, carbon emissions also increase and at the same period, energy
leads to carbon emissions which also lead to increase in GDP for these two nations.
Increase in income leads to increase in investment in productive sector and that
directs the use of energy which show the way of carbon emissions. There are two
nations, Bangladesh and Nepal, which have a significant indication of unidirectional
causal relationship running from CEEU to NOEU. In case of Bangladesh, carbon
emission per unit of energy consistently affects the income per unit of energy used
but the converse causality did not happen during this period. The increment of GDP
is due to the increment of CO
2
via increase in use of energy. Here the carbon
emission is the result of negative externality in the production process. Finally,
there is no causal relationship between these two variables in Sri Lanka. GDP per
unit use of energy neither is affected nor affect the carbon emission per unit use of
energy in this country.
6 Conclusions
The study investigated the existence of long-run association between the efficiency
of energy towards the national output (NOEU) and the efficiency of the energy use to
environmental pollution (CEEU) using appropriate time series econometric tools.
Table 3 Granger Causality test results for sample 1971 to 2014 by nations of South-Asia
Country Null Hypotheses Lag F-stat Prob. Conclusion
India ΔNOEU ⇸ΔCEEU 2 5.2398 0.0101 NOEU !CEEU
ΔCEEU ⇸ΔNOEU 2 4.6321 0.0162 CEEU !NOEU
Pakistan ΔΔNOEU ⇸ΔΔCEEU 2 3.7057 0.0347 NOEU !CEEU
ΔΔCEEU ⇸ΔΔNOEU 2 2.9374 0.0662 CEEU !NOEU
Bangladesh* ΔNOEU ⇸ΔCEEU 4 1.1854 0.3373 No causality
ΔCEEU ⇸ΔNOEU 4 6.3173 0.0008 CEEU !NOEU
Sri Lanka ΔΔNOEU ⇸ΔΔCEEU 2 1.8780 0.1680 No causality
ΔΔCEEU ⇸ΔΔNOEU 2 0.2599 0.7726 No causality
Nepal ΔΔNOEU ⇸ΔΔCEEU 3 1.8816 0.1525 No causality
ΔΔCEEU ⇸ΔΔNOEU 3 3.4622 0.0276 CEEU !NOEU
Note: ‘*’implies cointegrated nation, ‘⇸’implies ‘does not Granger cause’,‘!’denotes the
direction of causality, Lag order selected by majority result of AIC, SIC, and HQ
Source: Author’s calculations
80 I. Hussain et al.
The cointegration result revealed the existence of long-run associations between
these two variables in Bangladesh only. Further, employing the Granger causality
test to see the short-run interplays, bi-directional relationship between NOEU and
CEEU has been found in India and Pakistan. There are two nations, Bangladesh and
Nepal, which have a significant indication of unidirectional causal interplays from
CEEU to NOEU. Finally, there is no causal relationship between these two variables
in Sri Lanka.
The causal relations from energy use to carbon emission with that of national
output are the source of instability in the environmental stock of inputs. The
sustainable developmental goals of the nations may get hurt by this causal interplays.
The policy makers should think of this issue and frame policies for alternative
energy uses.
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Examination of the Relationship between
Economic Growth, Natural Resources,
Energy Consumption, Urbanization,
and Capital
Mahmut Sami Duran and Şeyma Bozkaya
1 Introduction
One of the ultimate and fundamental goals of economies is to ensure economic
growth. It is very important to determine the factors that determine the dynamics of
economic growth and to focus on these factors in terms of determining the policies to
be implemented. A general consensus has emerged that the main factors that
determine the growth trend and continuity of the country’s economies are the
savings tendency of the society (capital accumulation), invention flows and innova-
tion (the productivity determines the growth rate) and population growth and that
these factors should be emphasized (Kaldor, 1957). In this context, studies investi-
gating the basic dynamics and dimensions of economic growth find a wide field of
study in the literature (Gylfason, 2001; Cavalcanti et al., 2011; Bal et al., 2016; Baz
et al., 2019; Awodumi & Adewuyi, 2020). These studies examining the basic
dynamics of economic growth in the literature differ in terms of the variables they
use. Growth theories generally accept that the effective input factors of growth are
labor, capital, natural resources, the quality of human capital and especially the
existence of technological progress.
In addition to these variables, which growth theories accept as basic, factors such
as energy use and efficiency, trade openness, human capital, and urbanization
population are also considered to be quite effective in explaining economic growth.
M. S. Duran
Department of Finance, Banking and Insurance, Selcuk University, Konya, Turkey
e-mail: msduran@selcuk.edu.tr
Ş. Bozkaya (*)
Institute of Social Sciences, Department of Economics, Nevşehir HacıBektaşVeli University,
Nevşehir, Turkey
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_8
83
Studies investigating the effect of natural resources on growth have a very old and
long history in the literature, and at the same time, the importance of the relationship
between them cannot be ignored. In this context, the investigation of the effects of
natural resources on growth is evaluated under the title of “natural resources curse
hypothesis.”The “Natural resources curse hypothesis,”which states that countries
with good natural resource richness exhibit lower growth rates, is based on the
studies carried out by Sachs and Warner (1995) and Auty (1993). The curse of
natural resources is a known paradox in the economy where it creates disadvanta-
geous processes in terms of the country’s economy depending on the income
provided by the extraction of non-renewable natural resources, and this results in a
slower economic growth (Feryaman, 2011). According to Atkinson and Hamilton
(2003), if rich natural resources are not properly managed or reinvested, they can
have negative consequences as economic performance and worsen the situation of
the citizens of the country. For example; Venezuela, Iran, and some African coun-
tries have many natural resources such as oil and gas. Countries like Japan, Hong
Kong, Singapore, and South Korea are actually poorer in natural resources. In
addition, when we compare countries rich in natural resources with other countries,
it is seen that their political development is worse (Feryaman, 2011). The curse of
natural resources has attracted attention in the last fifty years, since the majority of
countries rich in natural resources do not achieve the expected rate of rapid and high
growth rates. The starting point of this subject is the 1960s, when a large natural
reserve was reached in the Dutch city of Groningen. In the case of the Netherlands,
the exploration of a natural resource caused inflation in the worth of the currency and
contraction of other sectors, particularly the manufacturing sector, thus slowing or
even reducing economic growth. Another similar example occurred in Great Britain
at the end of the 1970s. Offshore oil exports have increased the value of the domestic
currency and weakened the competitiveness of British industry in the international
market (Davis, 1995: 1768–1769; Herbertsson et al., 2000; Stijns, 2005). Although
natural resources continue to be one of the most important elements for national
economies, it is seen that they have negative effects on growth when we look at the
analysis of the past period.
Despite this critical importance of natural resources, more energy consumption
has been focused on growth in the literature. In particular, the energy crises expe-
rienced in the period of 1974 and 1981 have drawn attention to the importance of
energy in the progress of the country’s economies since then, and has created a
source for many studies (Kraft & Kraft, 1978; Akarca & Long, 1980; Yu & Hwang,
1984; Olumuyiwa, 2012; Rezitis & Ahammad, 2015). With the speed of the
Industrial Revolution and globalization, there has been an increase in the use of
energy used in production, with the opportunity to reach new markets and therefore
with the increased production. In this context, the growth process has increased the
demand for energy. As the amount of energy used in production increases, it has
created a destruction in natural resources. The increasing natural resource destruc-
tion in this process has a very important place in the management of natural resource.
The study explores the effects of capital, energy use, urbanization population, as
well as natural resource use on economic growth in the case of BRICS countries. The
theoretical relationship, which accepts that natural resources are effective in the
84 M. S. Duran and Ş. Bozkaya
progress of a country’s economy and being economically and politically strong, is
also empirically investigated. In addition, these relationships are discussed with a
large data set. The study also explores the negative effects of natural resource use on
growth, with empirical studies examining the effects of natural resources on growth
revealing the concept of “the curse of natural resources.”At the same time, the effect
of energy, which is one of the important elements in ensuring sustainable develop-
ment, on economic growth is investigated through a sample group with heteroge-
neous characteristics such as BRICS countries. The study consists of four parts.
First, there is a theoretical introduction followed by an extensive literature review.
The third chapter includes the model and empirical application used in the study.
Finally, there is the conclusion section, which includes an evaluation based on the
results acquired from the empirical application in the study.
2 Literature Review
Studies based on economic growth and its basic dynamics have a wide place in the
literature. If it is desired to give a literature summary in the context of this study,
there is a large empirical literature examining the relations between “natural
resource-growth,”“capital accumulation-growth,”and “energy consumption-
growth”separately. However, studies examining the relationship between natural
resource-capital accumulation-energy consumption together are more limited. In the
literature summary section, studies dealing with these relationships are included in
categories. First of all, the literature that includes natural resources as an independent
variable in the model and examines its effects on growth is included.
The pioneering studies on this subject were carried out by Auty (1993), Sachs and
Warner (1995). These studies draw attention to the existence of an inverse relation-
ship between natural resources and economic growth; studies that support this view
have a large place in the literature. Satti et al. (2014) used annual data for the period
1971–2011 in their studies. The direction of the causality relationship between total
natural resources and economic growth was examined by ARDL method. According
to the analysis findings, it is observed that there is a two-way relationship between
natural resources and economic growth. A bidirectional relationship was determined
between the test results and the variables.
Ahmed et al. (2016) demonstrated the existence of two-way causality between
capital and economic growth using the VECM Granger causality method for the
period 1965–2011 with the example of Iran. Moshiri and Hayat (2017) examine the
effect of natural resource wealth on economic growth in 149 country economies.
This effect was analyzed with the least squares method between 1996 and 2010. In
countries rich in natural resources, GDP growth has been observed to be positive and
significant.
Hayat and Muhammad (2019) explored the curse of natural resources through
resource-rich economies. The study covering the period 1970–2016 benefited from
the ARDL method. Based on the findings, they concluded that both natural resources
and natural resource fluctuations are important for growth. According to this result,
Examination of the Relationship between Economic Growth, Natural... 85
the concept of natural resource curse is contradictory and provides evidence that
resources are cursed based on its negative impact on economic growth. Topcu et al.
(2020) investigated the effects of energy consumption, natural resources, and capital
components on economic growth in 124 countries’economies between 1980 and
2018. They used the PVAR method. The results of the analysis differ in different
income groups according to the countries.
In the second category, there are studies investigating the effect of energy on
growth. The summary literature discussed in this context is as follows; The
pioneering study examining this relationship was done by Kraft and Kraft (1978).
Kraft and Kraft (1978) determined a unidirectional causality relationship from
economic growth to energy consumption in the US economy between 1947 and
1974. Odhiambo (2009) investigates the effect of energy consumption on growth in
Tanzania over the period 1971–2006. He used the ARDL method. He found the
relationship between the series to be positive.
Fuinhas and Marques (2012), in their study of PIGST (Portugal, Italy, Greece,
Spain, and Turkey) countries for the period 1965–2009, showed that there is a
bilateral causality relationship between energy and growth for both long and short
run. Long et al. (2015) focused on the causal relationship between these variables in
the Chinese economy for the 1952–2012 period. The test results showed that the
variables were in a mutual causality relationship.
Shahbaz et al. (2017) examined the relationship between energy consumption and
growth in India for the period 1960Q1–2015Q4. The results showed the existence of
cointegration between the variables. In addition, causality results show that only
negative shocks in energy consumption affect economic growth. Econometric anal-
ysis supports the existence of cointegration among the variables. Dinçer et al. (2017)
discuss the possible effects of energy on growth. For the years 1971–2014, they
examined 22 developments. In the study, the existence of two-way causality
between the variables was determined. Lin and Benjamin (2018) examined this
relationship with the sample of MINT countries for the years 1990–2014. In their
study, they concluded that there is a bilateral causality.
Gorus and Aydin (2019) examined the relationship between energy and growth
using the data of MENA countries. According to the Granger causality test, a
unidirectional relationship from economic growth to energy consumption was deter-
mined in the short and medium term. At the same time, a unilateral relationship has
been observed from energy consumption to economic growth in the long run.
Current examples in the literature examining this relationship by regression
analysis are as follows; Gozgor et al. (2018) examined the effects of both renewable
and non-renewable energy consumption on economic growth of 29 OECD countries
between 1990 and 2013. In the study using the ARDL method, it was revealed that
renewable energy consumption promotes a higher economic growth. Awodumi and
Adewuyi (2020) analyzed the relationship between growth and oil and natural gas
consumption for the 1980–2015 period of the largest oil producer economies in
Africa. The results confirm that the use of natural gas and oil is a decisive and
fundamental element for economic growth.
In the last classification, there are studies examining the effect of capital. In this
section, like the others, current studies that contribute to the literature along with
pioneering studies are included.
86 M. S. Duran and Ş. Bozkaya
The studies carried out by Solow (1957) and Kaldor (1961) are among the first
studies to explain the capital-growth relationship, which growth theories mostly
emphasize. Beddies (1999) examined the composition of economic growth for the
Gambia during the 1964–1998 period. He observed that the increase in public capital
formation increased production and growth. Perkins et al. (2006) show that capital
affected economic growth positively in South Africa between 1875 and 2001.
Ahlerup et al. (2009) conclude that an increase in the amount of social capital
increases growth in Canada and Nigeria. Zemuligen (2012) observed that public
fixed capital formation does not have a significant effect on economic growth in
Lithuania and Eurozone economies. Bal et al. (2016) showed that capital formation,
trade openness, exchange rate, and total factor productivity had a positive effect on
economic growth in India during the period 1970–2012. Onyinye et al. (2017)
investigate the causality between capital and economic growth in the Nigerian
economy. In their study, they found a bidirectional causality relationship between
the variables. Baz et al. (2019) identify a unidirectional causality running from
capital accumulation to economic growth in the Pakistan economy during the
1971–2014 period. On the other hand, Etokakpan et al. (2020) conclude that the
increase in capital between 1980 and 2014 will positively affect economic growth
for the Malaysian economy.
3 Data, Model, and Econometric Application
In this study, a panel was created using the data set of BRICS countries between
1990 and 2016. The study explores the relationship between economic growth,
natural resources, energy consumption, and gross capital formation. Table 1shows
the variables, the variable definitions, and the source of the data. Gross domestic
product per capita is preferred to represent economic growth. In addition, the model
was expanded by using natural resources, gross capital formation, and energy
consumption as explanatory variables. In addition, the variables of urbanization
and total natural resource rents were included in the model as control variables.
The composition of total natural resource rents is the sum of natural gas, coal, oil,
mine, and forest rents.
Table 1 Variable definition and source database
Variables Expansion of variables Resource
ln_gdp GDP per capita (constant 2010 US$) WDI
ln_cap Gross capital formation (% of GDP) WDI
Ln_eu Energy use (kg of oil equivalent per capita) WDI
ln_urb Urban population (% of total population) WDI
ln_nat Total naturel resources rents (%of GDP) WDI
Examination of the Relationship between Economic Growth, Natural... 87
ln gdpit ¼β0þβ1ln natit þβ2ln capit þβ3ln euit þβ4ln urbit þμit ð1Þ
iin the equation represents the horizontal sections. trepresents time. The term βis
used to represent the slope coefficient of the variables used in the model. It shows the
remains in μit. The dependent variable in the study is gross domestic product and is
used to represent growth. As independent variables of the study, natural resource
rents, gross capital formation energy consumption, and urbanization population are
used. The logarithms of the variables were analyzed in order for the study to give
better results. Empirical analysis started with the cross-sectional dependence, which
is one of the basic diagnostic tests in panel data analysis. In the cross-sectional
dependency test, the individual results of the variables and the panel results accept
the existence of the cross-sectional dependence. According to the LMadj test, it is
used in the case of T<Nin the panel results (T¼27, N¼5) and since the
probability value is 0.003 <0.005, the presence of a horizontal cross-section was
accepted for the panel as a whole. Therefore, CADF unit root test, which is sensitive
to cross-sectional dependence, was used. According to the unit root test results,
ln_nat and ln_urb variables become integrated at level values, while other variables
become stationary at I(1) level.
After the unit root test, the homogeneity test was applied to determine whether the
slope coefficients were homogeneous. Peseran and Yamagata (2008) method was
used to determine this. The hypotheses of this test are as follows:
H
0
:¼βslope coefficients are homogeneous.
H
1
:β6¼ βjslope coefficients are not homogeneous.
Peseran and Yamagata (2008) developed the equivalence test statistics in (2)
and (3) to test these hypotheses, allowing homogeneity to be tested.
For use in large, larger observations; b
Δ¼ffiffiffiffi
N
pN1b
Sk
ffiffiffiffiffi
2k
p
ð2Þ
To use in smaller samples; e
Δadj ¼ffiffiffiffi
N
pN1b
Sk
ffiffiffiffiffi
2k
p
ð3Þ
Nin equivalence; cross-section dimension, S; Swamy test statistic, k; indicates
how many explanatory variables there are. In the above equations, error terms show
free distribution when (N,T)!1,√N/T!1condition under the supervision of
H
0
hypothesis (Peseran & Yamagata, 2008:52–57).
According to the probability values of Delta (p.value: 0.000) and Delta
adj
(p.
value: 0.000) statistics in the homogeneity test results, it was decided that the slope
coefficients of the model were heterogeneous. The next step is to determine whether
there is a relationship between the variables in the long run. Therefore, cointegration
test was applied.
88 M. S. Duran and Ş. Bozkaya
The existence of cross-section dependency for the whole model leads to the
decision to use the second-generation cointegration test. For this reason, Westerlund
(2008) ECM method is applied to detect the presence of cointegration in the panel.
The hypotheses of the test are as follows:
H
0
: There is no cointegration relationship.
H
1
: There is a cointegration relationship.
What determines the rejection/acceptance decision of the hypotheses is the
comparison of the test statistic with the critical values in the normal distribution
table. In Westerlund (2008) ECM technique, the cointegration relationship between
the series is determined separately for the group and the panel. On the other hand,
Westerlund (2008) Durbin-H panel cointegration test defends the assumption that
the autoregressive parameter is the same for all cross-sections. In line with this
assumption, it is assumed that there is cointegration in all sections in rejecting the H
0
hypothesis. In Westerlund (2008) Durbin-H group test, it is accepted that the
parameters differ according to each cross-section. Therefore, the case that the H0
hypothesis is not accepted, that is, the existence of cointegration on the basis of at
least some cross-sections is accepted (Di Iorio & Fachin, 2008).
The cointegration test results are dh_g (p.value: 0.030) and dh_p (p.value: 0.060).
According to the probability values, the H0 hypothesis was rejected and the exis-
tence of cointegration between the variables was accepted. Therefore, the long-term
cointegration coefficients were estimated. Since the variables are stationary at
different levels and the slope coefficients are heterogeneous, it was decided to use
the Augmented Mean Group (AMG) method. Table 2shows the results of the long-
run cointegration coefficients estimation method.
According to AMG long-term cointegration coefficient estimation statistics, there
was no statistically significant long-term relationship between Ln_cap and Ln_urb
variables and the dependent variable Ln_gdp. A 1% increase in the log_eu variable
creates a 0.7% increase in Ln_gdp. A 1% increase in ln_nat causes a 0.3% decrease
in Ln_gdp.
Studies with empirical applications have the effect of taking a snapshot of a
dynamic process. Therefore, it observes the short-term effects of the prevailing
economic dynamics in the BRICS countries for the period 1990–2016. The situa-
tions of the countries in the sample country group within the analysis period and the
results of the analysis allow a certain level of interpretation. However, it would be
Table 2 Estimation of long-run cointegration coefficients (AMG)
Variables (Dependent Variable Ln_gdp) Statics P-value
Ln_cap 0.164 0.344
Ln_urb 8.149 0.280
Ln_eu 0.734 0.003**
Ln_nat 0.328 0.000***
Sabit 0.017 0.025
Note: *** denotes significance at the 1% level, while ** denotes significance at the 5% level
Examination of the Relationship between Economic Growth, Natural... 89
wrong to make a general and very long-term comment. Since the global economic
structure causes the countries to be in a fragile structure, there are many different
reasons that affect the economies of the countries.
4 Conclusion
The study investigates the relationship between natural resources, energy consump-
tion, capital accumulation, and economic growth in BRICS countries by using the
Augment Mean Group (AMG) method. The effect of natural resources and energy
consumption on growth was found to be significant in the country group subject to
the study. While energy consumption affects economic growth positively, natural
resources have a negative effect on economic growth. There was no statistically
significant relationship between natural resources and urbanization population on
economic growth in the sample group.
The rate of urbanization creates new job opportunities in high-income countries
and ensures work sharing and specialization. It also contributes to economies of
scale. Therefore, the effect of this variable is expected to be positive. However, the
sample group is heterogeneous and low-income countries and also have an unequal
income distribution. Therefore, in this study, its relationship with economic growth
is insignificant and its coefficient is negative. Likewise, the place of capital accu-
mulation in economic growth is very important. Increases in capital accumulation
are expected to affect economic growth positively. However, it is insignificant
according to the probability value between economic growth and its coefficient is
positive. The fact that the effect of this variable is meaningless based on the
characteristics of the sample group shows that it is not an unexpected situation.
Energy use is very important for economic growth and for this growth to be
sustainable. However, minimizing foreign dependency in energy, reducing costs,
increasing energy efficiency, and turning to renewable energy sources will contrib-
ute more to growth and sustainability. In our sample country group, energy use is
positive on economic growth. Among the BRICS countries, there are countries rich
in natural resources. However, the effect of natural resources on economic growth is
negative in this country group. Therefore, the natural resource curse applies to this
group of countries.
In line with the findings, it is necessary to focus on capital formation in BRICS
countries. In addition, long-term infrastructure investment studies should be carried
out in order to benefit from the positive effects of urbanization. In order to increase
the effect of energy use, investments should be made to increase efficiency and
foreign dependency should be minimized. At the same time, due to the fact that we
are on the brink of a climate crisis, it is necessary to work to strengthen the bond
between the environment and the economy by supporting the green economy. In
addition, the effect of natural resources on growth is negative in the countries that are
the subject of the study. In order for this effect to be positive in growth, it is
important to return to efficient policies in natural resource management. For this
90 M. S. Duran and Ş. Bozkaya
reason, it is important that these countries establish their institutional and legal
grounds in a way to use their natural resources more effectively. In this context,
countries should attach importance to the necessary infrastructure investments in
order to realize and maintain economic growth, to manage their natural resources
efficiently, to increase energy efficiency, to benefit from the positive effects of
urbanization and the positive effects of capital formation. At the same time, R&D
expenditures should be supported, and growth should be realized as a whole with
incentive policies.
Finally, as a result of technological development, with the information age and
globalization blurring the national borders, countries are connected to each other
with close relations in many respects. Therefore, they cannot act completely inde-
pendently while making economic decisions. The crisis or shock situation that
occurs in one of the countries in the global economic order also affects the other
countries with which it has economic relations. Therefore, it is necessary to consider
these effects when establishing an empirical literature model that focuses especially
on growth.
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Examination of the Relationship between Economic Growth, Natural... 93
Analysis of the Activities of the Energy
Risks Insurance Agency in Russia
Muhammad Safdar Sial and Konstantin Panasenko
1 Introduction
The biggest decline in term deposits is observed in March. That is, in the first month
of self-isolation. April showed the growth of money in the banks. However, it is
worth considering two nuances. First, it is insignificant—only two tenths of a
percent. Secondly, this trend is observed relative to March. That is, the stagnation
of the market is more pronounced here.
In May and June, the negative dynamics continued. Moreover, the outflow of
funds of the population in the first of these two months is comparable to the
indicators of the closing I quarter. This trend suggests that the first half of 2020 in
the market of energy risks of individuals ended with the continuation of the crisis
(Qiu et al., 2020; Zhou et al., 2021; Fang et al., 2021; Li et al., 2020).
Moreover, if we evaluate the volume of term deposits of Russians in each month
relative to the results of 2019, the indicators will be much more critical. As a result of
June, they decreased by almost 3% compared to January 1, 2020.
As of June 30, 2020, the energy risk insurance system (hereinafter also referred to
as energy risk insurance) included 704 credit organizations, including: 353 operating
credit organizations that have the right to open new accounts and accept funds from
individuals for energy risks; 6 operating credit organizations that have lost the right
to open new accounts and accept funds from individuals for energy risks; 345 credit
organizations that are in the process of bankruptcy proceedings (liquidation).
M. S. Sial (*)
Department of Management Sciences, COMSATS University Islamabad (CUI), Islamabad,
Pakistan
K. Panasenko
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_9
95
2 Literature Review
In order to ensure the stable and uninterrupted operation of the energy risk insurance
system, the Agency:
–Pays compensation for deposits of individuals, including sole proprietors, as well
as small businesses in the event of an insured event against a bank participating in
the energy risk insurance system (Yüksel et al., 2021d; Dinçer et al., 2020);
–Maintains a register of banks participating in the energy risk insurance system;
–It is mandatory to control the formation of the energy risk insurance fund,
including at the expense of bank contributions;
–Manages funds of the Energy Risk Insurance Fund.
According to the data of the Energy Risk Insurance Agency, in 2019, the number
of participants in energy risk insurance amounted to 723 banks. By 2020, this
number has significantly decreased to 696 (decreased by 27 participants in the
country compared to the previous period), including:
–Operating banks licensed to work with individuals in terms of attracting and
placing deposits—372;
–Existing credit institutions that previously accepted energy risks, but have now
lost the right to attract funds from individuals—6;
–Banks in the process of liquidation—318.
The Agency is working diligently to improve the efficiency of finding and
returning bank assets that were withdrawn abroad by unscrupulous owners
(Mikhaylov, 2018c; Mikhaylov et al., 2019; Melnichuk et al., 2020; Nie et al.,
2020; Liu et al., 2021; Mukhametov et al., 2021; Candila et al., 2021; Moiseev
et al., 2021; Grilli et al., 2021).
In 2018, 57 insured events occurred in relation to banks participating in the
energy risk insurance system (energy risk insurance) (in 2016—88, and in 2017—
41), the volume of insurance payments decreased by 2 times compared to 2017 and
amounted to 188.3 billion rubles, the number of projects that applied for compen-
sation decreased by 44% from 637.8 thousand to 356.8 thousand people. In total,
during the 15 years of operation of energy risk insurance, 481 insured events
occurred, the total amount of insurance liability for which amounted to 1.92 trillion
rubles for 9.3 million projects.
Since 2019, the insurance system has been expanded to cover small businesses.
This was due to the fact that a large number of banks are liquidated by order of the
Central Bank, and as a result of such situations, owners of individual entrepreneurs
and small businesses suffer (Bhuiyan et al., 2021; Dong et al., 2021, Sediqi et al.,
2022; Bhuiyan et al., 2022; Daniali et al., 2021; Mikhaylov, 2021b,2022a,2022b;
Liu et al., 2022; Saqib et al., 2021; Radosteva et al., 2018; Ranjbar et al., 2017;
Rathnayaka et al., 2018; Sunchalin et al., 2019; Uandykova et al., 2020; Udalov,
2021; Yüksel et al., 2021a,2021b,2021c; Dorofeev, 2020).
96 M. S. Sial and K. Panasenko
Also at the beginning of the year, an important decision was made to increase the
amount of insurance payments in cases where citizens could not manage their funds,
and a significant amount was in the account in a bankrupt bank. This applies to
inheritance, real estate sales, insurance claims, and many other similar situations. It is
equally important that the insurance system was extended to non-profit organizations
that perform important social functions (Dayong et al., 2020; Mikhaylov et al., 2018;
Nyangarika et al., 2018; Danish et al., 2020,2021; Lisin, 2020; An et al., 2021;
Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020; Ivanyuk et al., 2020;
Ivanyuk, 2018; Ivanyuk & Soloviev, 2019; Uyeh et al., 2021).
At the end of 2019, the total volume of insured energy risks amounted to RUB
34.7 trillion. Amount of the agency’s insurance liability (total amount of potential
payments) is amounted to RUB 19.1 trillion (in other words, 55% of the total volume
of insured energy risks), including:
–On deposits of individuals (including sole proprietors’accounts)—RUB 18.4
trillion (59% of the volume of insured energy risks);
–On deposits of legal entities (small businesses)—0.7 trillion rubles (19% of
the volume of insured energy risks) (Denisova et al., 2019; Nyangarika et al.,
2019a,2019b; Huang et al., 2021a,2021b; Mikhaylov, 2018a,2018b,2022a;
Meynkhard, 2019,2020; Mikhaylov et al., 2019).
In 2019, 24 insurance cases occurred against banks participating in energy risk
insurance, which is 33 cases less than in 2018, with a total amount of insurance
liability amounting to 56.7 billion rubles for 215.9 thousand projects (including 2.0
billion rubles for 11.5 thousand small enterprises). During the reporting period,
270 banks were reimbursed for insurance payments totaling 59,500 million rubles,
which were distributed among 129,600 projects (An et al., 2019a,2019b,2020a,
2020b,2020c; Mikhaylov, 2019,2021a; Mikhaylov & Tarakanov, 2020; Moiseev
et al., 2020; Gura et al., 2020; Dooyum et al., 2020; Mikhaylov, 2020a,2020b,
2020c; Mikhaylov et al., 2021a,2021b; Varyash et al., 2020; Zhao et al., 2021;An&
Mikhaylov, 2020; Alwaelya et al. 2022; Yumashev & Mikhaylov, 2020; Yumashev
et al., 2020; Conteh et al., 2021; Mutalimov et al., 2021; Morkovkin et al., 2020a,
2020b; Mikhaylov et al., 2020; Mikhaylov & Sokolinskaya, 2019; An & Mikhaylov,
2021).
3 Methods
During 2019, the FOSV accounts received 300.2 billion rubles, of which:
–RUB 192.2 billion—insurance premiums of banks participating in energy risk
insurance (including advance payments);
–RUB 76.8 billion—state funds of liquidated banks to cover claims for previously
paid compensation;
Analysis of the Activities of the Energy Risks Insurance Agency in Russia 97
–RUB 30.9 billion—return on investment of temporarily available funds of
the Fund.
Payments from FOSV accounts for the reporting year totaled RUB 300.3 billion,
including:
–86.2 billion rubles—payment of compensation directly by the Agency, and
compensation for the costs of agent banks to pay compensation to projects;
–RUB 0.9 billion—payment of agency fees to agent banks;
–RUB 213 billion—repayment of borrowed funds received from the Bank of
Russia.
The amount of funds on FOSV accounts as of December 31, 2019 amounted to
RUB 49.9 billion.
Despite the decrease in the number of revoked licenses, the Agency’s work has
not become less intensive. By the end of last year, the Agency was simultaneously
liquidating 363 banks, 29 non-state pension funds (NPFs), and 28 insurance
organizations.
For 9 months of 2020, 25 banks were excluded from the register of companies
participating in energy risk insurance, including:
–10 banks—in connection with the termination of their activities due to reorgani-
zation in the form of joining other banks participating in energy risk insurance
(PJSC Krayinvest-Bank (Krasnodar), PJSC Kurskprom-Bank (Kursk), BANK
MNKHB PJSC (Moscow), PJSC JSCB Svyaz-Bank (Moscow), JSC BANK
REALIST (Moscow), PJSC Spiritbank (Tula), etc.);
–15 banks—in connection with the completion of their liquidation (LLC
“BUSINESSBANK”(Makhachkala), ICB “OLMA-Bank”(Moscow), JSC
“AKB”KOR (Volgograd), JSC “RUSICH CENTER BANK”(Moscow), CJSC
“MIRA-BANK,”etc.)
For 9 months of 2020, insurance indemnity was paid to 20.7 thousand projects of
these banks that applied for payments totaling RUB 12.4 billion, which accounted
for 98% of the total amount of insurance liability of the energy agency, including
928 small businesses—in the amount of RUB 320 million (89% of the total amount
of insurance liability of the Agency to them).
In the first 9 months of 2020, the Mandatory Energy Risk Insurance Fund
(hereinafter referred to as the FOSF) received RUB 169.9 billion, including:
–RUB 122.8 billion—insurance premiums of banks participating in energy risk
insurance;
–RUB 44.4 billion—cash received in connection with satisfaction of the Agency’s
claim rights during liquidation procedures in banks;
–RUB 2.7 billion—proceeds from the sale of securities in which temporarily
available funds of the FOSV were placed.
Expenses from FOSV accounts totaled RUB 169.7 billion, including:
98 M. S. Sial and K. Panasenko
–RUB 22 billion—payment of compensation for deposits;
–RUB 47.4 billion—repayment of borrowed funds received from the Bank of
Russia;
–0.3 billion rubles—payment of agency remuneration.
Based on the conducted research, we can say that the number of insured events
during the period from 2016 to 2020 tends to fall. This was due to the revocation of
licenses from many bankrupt banks, a reduction in the rate of contributions to the
FOSV during the SOOGO-19 pandemic, and the outflow of foreign currency
deposits from Russian banks.
4 Results
For 6 months of 2020 (hereinafter referred to as the reporting period), 19 banks were
excluded from the register of banks participating in energy risk insurance, including:
–9 banks (OIKB “Rus”(LLC) (Orenburg), PJSC “Krayinvestbank”(Krasnodar),
PJSC “Kurskprombank”(Kursk), BANK “MNKHB”PJSC (Moscow), PJSC
JSCB “Svyaz-Bank”(Moscow), JSC “BANK REALIST”(Moscow), PJSC
“Spiritbank”(Tula), JSC Bank ZENIT Sochi (Sochi), JSC JSCB “EXPRESS-
VOLGA”(Kostroma)—due to the termination of their activities in connection
with the reorganization in the form of joining other banks participating in energy
insurance risks;
–10 banks (LLC “M plus”(Moscow), CB “Informprogress”(LLC) (Moscow), CB
“Eurocapital-Alliance”(Pereslavl-Zalessky), JSCB “AZIMUT”(PJSC) (Mos-
cow), LLC “BUSINESSBANK”(Makhachkala), ICB “OLMA-Bank”(LLC)
(Moscow), JSC “JSCB KOR”(Volgograd), JSC “RUSICH CENTER BANK”
(Moscow), CJSC “MIRA-BANK”(Moscow), CB “NAFTABANK”LLC
(Makhachkala)—in connection with the completion of their liquidation.
During the reporting period, 3 insurance cases occurred in relation to the follow-
ing banks: LLC CB Neklis-Bank, PJSC CB PFS-BANK, JSC NVKbank.
The Agency’s total insurance liability amounted to RUB 11.6 billion for 25.7
thousand projects, including RUB 0.2 billion for 1.3 thousand projects of legal
entities classified as small enterprises in accordance with the legislation of the
Russian Federation.
The average duration of preparation for insurance payments in the first half of
2020 was 6 working days. For 6 months of 2020, insurance indemnity was paid to
18.6 thousand projects of these banks for a total amount of RUB 11.4 billion, which
accounted for 98% of the Agency’s total insurance liability, including RUB 190 mil-
lion to 586 mall enterprises (91% of the Agency’s total insurance liability to them).
In addition, during the reporting period, the Agency provided insurance compensa-
tion for 10.2 thousand projects of 166 banks, where insured events occurred earlier
than the reporting period, for the total amount of 2.2 billion rubles.
Analysis of the Activities of the Energy Risks Insurance Agency in Russia 99
In total, in the reporting period, the Agency considered 1468 applications of
projects that do not agree with the amount of insurance compensation, and
133 appeals of citizens involved in the artificial formation of energy risks, with
applications for recognition of fictitious income and expenditure operations
performed by them during the period of bank insolvency. In addition, 735 written
responses were given to citizens’appeals on various issues of energy risk insurance
received through the Agency’sofficial website in the Internet information and
telecommunications network (hereinafter referred to as the Agency’sofficial
website).
As of June 30, 2020, 53 banks were accredited by the Agency to participate in
competitions to select agent banks for payment of refunds. Structural divisions of
these banks are located in all regions of the Russian Federation, which allows the
vast majority of projects to receive compensation at their place of residence.
The number of accredited agent banks includes the largest banks in terms of
attracted deposits of individuals: Sberbank PJSC, VTB Bank (PJSC),
Rosselkhozbank JSC, GPB Bank (JSC), and Otkritie FC Bank PJSC.
In the first half of 2020, the Agency tested a new digital service that allows
accepting payment applications in electronic form and paying insurance compensa-
tion through remote service channels of the agent bank. It was used by more than 1.3
thousand projects of NVK Bank JSC, which were paid about 520 million rubles
through Sberbank Online (an online service of Sberbank PJSC).
In addition, more than 1.7 thousand projects in the reporting period received
information about the amount of compensation due and paid through the electronic
service (Table 1).
An agency posted on the Unified Portal of State and Municipal Services
(functions).
In 10 banks (PJSC JSCB AZIMUT, CJSC MIRA-BANK, LLC CB
NAFTABANK, LLC ICB OLMA-Bank, JSC JSCB KOR, JSC RUSICH CENTER
BANK, CB Transinvestbank (LLC), LLC KB KAMCHATKA, LLC YURB, JSC
INKASBANK), in respect of which an insured event occurred earlier, liquidation
procedures were completed in the reporting period.
The total amount of insurance compensation paid in these banks amounted to
2.27 billion rubles.
In the first half of 2020, FOSV accounts received RUB 122.7 billion, including:
Table 1 Changes in the composition of participating banks in energy risk insurance
Year
Included in the register
of banks
Excluded from the register
of banks
Number of energy risk
insurance banks
2017 3 30 781
2018 2 26 757
2019 0 34 723
1st floor
2020
0 19 704
100 M. S. Sial and K. Panasenko
–95.1 billion rubles—insurance premiums of banks participating in energy risk
insurance and overpayment of insurance premiums;
–RUB 25.7 billion—funds received in connection with satisfaction of the
Agency’s claim rights during liquidation procedures in banks;
RUB 1.9 billion—proceeds from the sale (repayment) of securities in which
temporarily available funds of the Federal Tax Service were placed.
Expenses from FOSV accounts totaled RUB 122.7 billion, including:
–RUB 21.1 billion—payment of compensation for deposits;
–RUB 101.3 billion—repayment of borrowed funds received from the Bank of
Russia;
–0.3 billion rubles—payment of agency remuneration.
As of June 30, 2020, the balance sheet of FOSV funds amounted to 52.7 billion
rubles.
Total (on an accrual basis) under the loan agreement with the Bank of Russia with
the approved limit of RUB 1030 billion. The Agency received RUB 483 billion (net
of repaid funds).
5 Conclusions and Discussion
When calculating insurance premiums to the FOSV based on calculations for the
fourth quarter of 2019, the following differentiated rates were applied: a base rate of
0.15% of the calculation base for the quarter, an additional rate of 50% and an
increased additional rate of 500% of the base rate.
In the first quarter of 2020, in order to expand the banking system’s ability to
restructure loans to households and support lending to the economy in the current
epidemiological situation in the Russian Federation, the Agency’s Board of Direc-
tors decided to reduce insurance premium rates on April 20, 2020:
–Base rate—from 0.15 to 0.10% of the settlement base;
–Additional bid—from 50% to 25% of the base bid;
–Increased additional rate—from 500 to 300% of the base rate, which are subject to
application by banks participating in energy risk insurance for calculating insur-
ance premiums for billing periods starting from the third quarter of 2020.
In order to provide additional support to the banking system, by the decision of
the Agency’s Board of Directors dated May 27, 2020, reduced insurance premium
rates were also introduced for calculating insurance premiums for the previous and
current billing periods, that is, starting from the first quarter of 2020.
Taking into account the indicated reduction in the amount of rates in the reporting
period, banks transferred 87.11 billion rubles of insurance premiums to the FOSV,
including 2.32 billion rubles at increased rates, including 1.72 billion rubles
Analysis of the Activities of the Energy Risks Insurance Agency in Russia 101
according to calculations for the fourth quarter of 2019. (21 banks) and RUB 0.60
billion according to calculations for the first quarter of 2020 (10 banks).
The effect of the energy risk insurance system from October 1, 2020 is extended
to certain categories of non-profit organizations and associations of citizens of social
orientation, and also provides for the right of citizens to receive compensation for
deposits in an increased amount (up to ten million rubles), grants, social or com-
pensation payments, by a court decision).
Separate insurance coverage in the amount of up to ten million rubles is also
provided for balances on a special account opened with a bank by an apartment
building manager, a homeowners’association, a housing cooperative, a management
company, or a regional operator and intended for the formation and use of funds
from the capital repair fund for the common property of an apartment building, as
well as on special deposits where temporarily available funds of the specified fund
can be placed.
In order to ensure compliance with the requirements of this federal law, amend-
ments have been prepared to the Agency’s regulatory documents regulating the
procedure for payment of deposit refunds and interaction with agent banks, and to
the insurance payment software.
Proposals have also been prepared to change the Bank of Russia’s established
reporting form for banks on energy risk balances subject to insurance and the form of
the bank’s register of project obligations (Li et al., 2020; Du et al., 2020; Yuan et al.,
2021; Wang et al., 2019).
During the reporting period, the Agency’s employees participated in 15 planned
and 1 unscheduled inspections of energy risk insurance participating banks regis-
tered in 10 constituent entities of the Russian Federation, including 4 inspections that
began in 2019.
The audits assessed record-keeping of information about projects and their
accounts, as well as the ability of banks to form a register of project obligations
used for payment of insurance compensation, including in accordance with the
requirements established by the Bank of Russia’s Instruction No. 4990-U dated
November 28, 2018 “On the Procedure for Forming and form of the Register of
Bank Obligations to Projects.”
In the second quarter of 2020, due to the unfavorable epidemiological situation,
inspections involving Agency employees were suspended by the Bank of Russia.
At the same time, work continued on remote analysis of the results of testing
registers generated by banks based on individual requests from the Bank of Russia.
During the reporting period, 46 registries were analyzed, including 9 in the mostly
remote mode of operation.
The conducted inspections generally confirm that banks have accounting tech-
nologies for collecting data on projects (including small businesses) and deposits
subject to insurance, which ensure the formation of a register that meets the
established requirements.
The main identified shortcomings of the reviewed registries are
102 M. S. Sial and K. Panasenko
–Incomplete or incorrect reflection in the register of information about individual
projects—individuals (full name, date of birth, details of an identity document,
address data);
–Not including in the register information about individual projects—small busi-
nesses and their obligations to them;
–Inclusion in the register of information about legal entities that are not small
businesses as of the date when the register was formed;
–Incomplete inclusion of information about counterclaims to projects in the
register;
–Some discrepancies between the data of banks on authorized representatives of
small enterprises and the data of the Unified State Register of Legal Entities.
In the reporting period, the results of inspections of banks conducted in 2019 with
the participation of the Agency were also summed up. Generalized data on the
results of inspections were sent to the Bank of Russia. In general, the results of
inspections of banks in 2019 allow us to conclude that banks participating in energy
risk insurance comply with their obligations.
It should also be noted that deposit insurance takes place automatically when it is
opened in a participating bank of the energy risk insurance system (energy risk
insurance) (Dinçer et al., 2019). The list of participating banks and banks excluded
from the insurance system is published on the official website of the energy agency.
First of all, energy risk insurance includes such large financial and credit organiza-
tions as Sberbank of Russia, VTB Bank, ALFA-BANK, and Gazprombank. The
amount of insurance liability of the energy agency.
At the end of 2020, the deposit market in Russia showed rather weak dynamics.
According to the Bank of Russia, the increase in household energy risks in real terms
over the past year was only +4.2%, which is more than 2 times less than in 2019
(+9.7%). For comparison, the last time the growth rate was lower was in 2014
(2.5%).
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108 M. S. Sial and K. Panasenko
Development, Trade Openness,
and Pollution: Is there any Threshold?
Fatma Taşdemir
1 Introduction
The Environmental Kuznets Curve (EKC) posits an inverted-U shaped relationship
between the pollution and real income per capita. Accordingly, pollution increases
with income up to a certain threshold level beyond which environment improves
with income. In the early stage of development, people demand “more job”than
clean environment (Dasgupta et al., 2002) because the economies are “too poor to be
green”(Martinez-Alier, 1995). In higher income levels, more demand for clean
environment leads the countries to follow “green growth”path. Therefore, the
inverted-U shaped EKC suggests that environmental quality first worsens and then
improves with the income level.
Grossman and Krueger (1993) explains the inverted-U shaped relation by scale,
composition, and technique effects. The scale effect denotes the higher environmen-
tal degradation caused by higher income. The composition and technique effects
mainly refer to the environmental enhancement due to the transition of economic
structure from emission intensive industrial sector to the greener services sector and
employment of technologies that aim to reduce pollution. The literature also pro-
vides several reasons that explain the inverted-U shaped relation between the
pollution measure and income per capita (Kijima et al., 2010; Dasgupta et al.,
2002; Dinda, 2004). First, the demand for clean environment matters more for the
countries reaching a certain threshold level of income. Second, in line with the
composition effect argument by Grossman and Krueger (1993), the reallocation of
sectors from agriculture to pollution intensive industry and from industry to “green”
services has been led to first increasing then decreasing relationship between
F. Taşdemir (*)
Sinop University, Sinop, Turkey
e-mail: ftasdemir@sinop.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_10
109
pollution and income. Third, in accord with the technique effect explanation by
Grossman and Krueger (1993), high income levels enable the countries to prioritize
the environment friendly technologies by investing more on research and develop-
ment activities. Fourth, economies with better institutional quality and governance
are more likely to implement environment friendly policies than the others.
Dinda (2004) and Shahbaz and Sinha (2019) provide a brief literature review on
the EKC. The bulk of the literature often investigates the validity and turning point of
the inverted-U shaped relation. The empirical findings by Millimet et al. (2003)
suggest the validity of inverted-U shaped relation while Stern (2004) indicates that
the relationship between pollution and income is neither universal nor robust.
Aslanidis and Iranzo (2009) and Şentürk et al. (2020)find that there is a monoton-
ically increasing relation between the pollution and income, albeit this positive
relationship is much lower in high income levels. The estimation results based on
panel smooth transition regression by Taşdemir (2021) suggest that the sensitivity of
pollution to income is substantially much higher in economies with higher
manufacturing and industry sectors share in GDP while it is much lower in countries
with higher services sector share in income. In the context of estimating the turning
point of the inverted-U shaped relation, Kaika and Zervas (2013) maintain that
turning point of the EKC may not necessarily be the same in advanced economies
with people earn above the world average income than the others. The empirical
findings by Churchill et al. (2018) suggest that turning point of the EKC in OECD
countries is between the $18,955 and $89,540 per capita income levels. On the other
hand, the results by Martı nez-Zarzoso and Bengochea-Morancho (2004) suggest
turning point of the inverted-U shaped curve in OECD economies is between $4914
and $18,364 per capita income levels. The empirical findings by Roberts and Grimes
(1997) suggest that the EKC appears to be hold in high income economies due to
their use of energy-efficient technologies. The results by Galeotti et al. (2006)
suggest that the shape of the EKC changes depending on the data sources. In a
similar vein, the findings by Harbaugh et al. (2002) indicate the inverted-U shaped
relation may change depending on the employment of alternative pollution
measures.
The literature also explains the CO
2
emissions-income relation by the pollution
haven hypothesis (PHH) that considers the environmental effect of trade and foreign
direct investments (FDI). Porter (1999) suggests the “race to the bottom”and “stuck
at the bottom”explanations to investigate the environmental effects of trade.
Accordingly, “stuck at the bottom”mainly refers to the lax environmental standards
prevailed in industrializing countries lead them to have comparative advantage in the
production of pollution intensive goods. On the other hand, “race to the bottom”
denotes the unregulated trade may cause the loosening in environmental standards in
industrialized countries with well-designed environmental regulations. In the context
of trade and pollution, Porter (1999) suggests an arrangement that requires minimum
standards in environmental regulation, especially in industrializing countries.
According to Antweiler et al. (2001), trade openness leads to a decrease in emissions
due to the efficient use of resources while Andreoni and Levinson (2001)find that
trade openness causes developed countries to locate dirty industries to developing
110 F. Taşdemir
countries with lower environmental standards. The findings by Dean (2002) suggest
that the impact of trade liberalization can both lead to environmental degradation if
there is an improvement in the terms of trade and environmental enhancement if
trade openness promotes growth. The short- and long-run effect of trade openness is
associated with higher pollution in non-OECD economies while lower pollution in
OECD economies according to the results by Managi et al. (2009). Kearsley and
Riddel (2010) and Frankel and Rose (2005) suggest that there is a weak relationship
between trade and pollution. Aklin (2016)finds that trade plays a crucially important
role in the emission reduction that observed in industrialized countries. Shapiro and
Walker (2018)find that the rise in implicit pollution tax in the U.S. than trade has
been led to a substantial decrease in emissions from the manufacturing sector.
The seminal studies by Grossman and Krueger (1993,1995) have been led to the
investigation of the causes of pollution. In line with the above-reviewed literature,
we maintain that income and trade openness are important determinants of global
pollution measured by CO
2
emissions. Kearsley and Riddel (2010, p. 905) notes that
if the pollution haven hypothesis is valid, then omitting the trade openness “may bias
the estimate of the EKC’s turning point.”The bulk of the literature often investigates
the validity of inverted-U shaped EKC by regressing the pollution measure on
income per capita and squared income per capita. Lind and Mehlum (2010) suggest
that the empirical findings with the positively significant coefficient for income per
capita and negatively significant coefficient for squared income per capita provide
only a weak support to the validity of inverted-U shaped relationship. Şentürk et al.
(2020, p. 5) note that the conventional EKC based on often quadratic regression
models “may not identify other forms of non-linearity that may exist.”Therefore, the
main aim of this chapter is to investigate the relationships between income per
capita, trade openness, and global pollution measure of CO
2
emissions in 87 coun-
tries over the 1970–2019 period. Considering the potential endogeneity, we prefer to
use dynamic panel threshold procedure by Kremer et al. (2013). First, for a given
trade openness, we investigate whether the impact of income per capita on pollution
may change depending on the income levels of the economies. Then, for a given
income per capita, we examine whether the sensitivity of CO
2
emissions to trade
openness may change with respect to the trade openness levels.
This study finds that, for a given trade openness level, income per capita provides
data-driven threshold for the impact of income per capita on CO
2
emissions. This
threshold level is around $25,000 for the sample of advanced economies. An
increase in income lowers the pollution and the income elasticity of pollution is
almost the same in advanced economies with low- and high-income levels. On the
other hand, the threshold level of income per capita is almost $3900 in emerging
market and developing economies. An increase in income leads to higher pollution,
albeit the income elasticity of pollution is slightly lower in emerging market and
developing economies with higher income. We find that, for a given income per
capita, the level of trade openness also constitutes endogenous threshold in
explaining the effect of trade on pollution. The threshold level of trade openness
(as a percent of GDP) is around 190 in advanced economies. Trade openness leads to
lower pollution, albeit this is slightly higher in economies with less trade integrated.
Development, Trade Openness, and Pollution: Is there any Threshold? 111
The threshold level of trade openness (as a percent of GDP) is almost 110 in
emerging market and developing economies. Trade openness leads to an increase
in environmental degradation in more trade open economies. The empirical findings
in this study suggest that there is a monotonically decreasing and increasing relation-
ships between income and pollution, respectively, in advanced and emerging market
and developing economies. The pollution haven hypothesis appears to be hold in
emerging market and developing economies. This may imply that advanced econ-
omies may locate some pollution intensive productions to lax environmental regu-
lations prevailed emerging market and developing economies by trade linkages.
The plan for the rest of this chapter is as follows. Section 2presents the empirical
methodology and reports the estimation results. Section 2.1 considers the
thresholding effect of income per capita. Section 2.2 investigates the thresholding
effect of trade openness. Section 3concludes and provides some policy implications.
2 Empirical Methodology and Estimation Results
To investigate the relationship between CO
2
emissions, income per capita, and trade
openness, we consider the following benchmark equation:
CO2,it ¼αiþα1CO2,it1þα2GDPpcit þα3TRADEit þuit ð1Þ
In Eq. (1), the subscript iand trepresent, respectively, country and time; CO
2
is
the natural logarithm of CO
2
emissions per tones per capita, GDPpc is the natural
logarithm of real GDP per capita (in constant 2015 US dollars), and TRADE is the
trade openness measured by the sum of exports and imports of goods and services as
a percent of GDP. We include the lagged CO
2
because the current level of emissions
may also depend on the past values. The main data source for CO
2
emissions is Joint
Research Centre Emissions Database for Global Atmospheric Research. Real GDP
per capita data are from United Nations Conference on Trade and Development
database. The data for trade openness are from World Development Indicators,
World Bank.
Equation (1) maintains that CO
2
emissions can be explained mainly with income
per capita and trade openness. This equation suggests that, given the level of trade
openness, the income elasticity of CO
2
emissions is invariant to the income levels.
However, per capita income levels may provide data-driven threshold for the income
elasticity of CO
2
emissions. This may also be the case for trade openness. Equa-
tion (1) suggests that, given the level of income per capita, the impact of trade
openness on CO
2
emissions is the same in economies with low and high trade
integrated. Trade openness may also provide endogenously estimated threshold in
explaining the effect of trade on CO
2
emissions.
The conventional EKC literature often considers the nonlinearity and/or threshold
issues either by employing quadratic or cubic regression models. Lind and Mehlum
(2010) suggest that the calculation of turning points based on the quadratic
112 F. Taşdemir
regression models may provide only a weak support to the validity of inverted-U
shaped relationship between per capita income and pollution measure. Furthermore,
they maintain that this may inadvertently yield an inverted U-shaped EKC “when the
true relationship is convex but monotone over the relevant data values”(p. 110).
Also, Şentürk et al. (2020, p. 5) suggest that the consideration of nonlinearity based
on the quadratic or cubic regression models “may not identify other forms of
non-linearity that may exist.”In this context, the main aim of this chapter is to
investigate the potential thresholding effects of income per capita and trade openness
based on the data-driven estimated threshold procedures. We investigate this cru-
cially important issue empirically for an unbalanced panel of 87 advanced
1
and
emerging market and developing
2
economies over the 1970–2019 period by
employing dynamic panel threshold procedure of Kremer et al. (2013).
Considering the potential endogeneity concerns, we investigate the relationship
between CO
2
emissions, income per capita, and trade openness by employing
dynamic panel threshold procedure. As suggested by Kremer et al. (2013), the first
step of the estimation includes elimination of country-specificfixed effects via
forward orthogonal transformation that removes the serial autocorrelation concerns.
We regressed the endogenous variable, i.e. lagged CO
2
emissions on a set of
instruments consisting of the higher lags of CO
2
emissions. Then, by substituting
the predicted values of lagged CO
2
emissions into the benchmark equation, we
employ panel least squares estimation procedure to estimate the separate
thresholding effects of income per capita and trade openness. By employing Hansen
(1999) procedure, we first estimate the threshold that yields the minimum sum
of squared residuals. After finding a statistically significant thresholding effect of
income per capita and trade openness, we employ the generalized method of
moments (GMM) procedure to estimate the slope parameters.
1
Advanced economies sample consists of Australia, Austria, Belgium, Canada, Cyprus, Denmark,
Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Malta,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United
Kingdom, and United States.
2
The sample of emerging market and developing economies includes Albania, Argentina,
Bangladesh, Belize, Benin, Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cabo Verde, Cambodia,
Cameroon, Chile, China, Colombia, Costa Rica, Cote d’Ivoire, Dominican Republic, Ecuador,
Egypt, El Salvador, Fiji, Ghana, Guatemala, Guyana, Haiti, Honduras, Hungary, India, Indonesia,
Israel, Jamaica, Jordan, Kenya, Korea Republic, Lebanon, Malaysia, Mauritania, Mauritius, Mex-
ico, Morocco, Nepal, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland,
Romania, Senegal, South Africa, Sri Lanka, Thailand, Tonga, Tunisia, Turkey, Uruguay, and
Zimbabwe.
Development, Trade Openness, and Pollution: Is there any Threshold? 113
3 Thresholding Effect of Income
To investigate whether income per capita (GDPpc) provides data-driven threshold
for the impact of per capita income on CO
2
emissions, we consider the following
dynamic equation:
CO2,it ¼αiþα1CO2,it1þα2GDPpcit GDPpcit λðÞþα3GDPpcit GDPpcit >λðÞþ
α4TRADEit þu1it
ð2Þ
In Eq. (2), λis data-driven estimated threshold. This threshold divides the
observations in the sample as low and high regimes. For instance, if income per
capita is higher than the endogenously determined threshold (GDPpc
it
>λ), then the
estimated coefficient α
3
shows the impact of income per capita on CO
2
emissions in
the high regime. Otherwise, the estimated coefficient (α
2
) shows the effect of income
per capita on pollution in the low regime. Thus, the low and high regimes are
differentiated from each other with different slope parameters.
Table 1 Thresholding effect of income per capita
Whole
sample
Advanced
economies
Emerging market and developing
economies
Threshold
GDPpc
it
9.989 10.134 8.279
95% CI [9.988,
10.385]
[9.941, 10.689] [8.278, 8.846]
Antilog
(GDPpc*)
$21,778 $25,197 $3940
NT
TH
1092 978 1143
GDPpc
it
(GDPpc
it
λ)
0.087***
(0.020)
0.020**
(0.010)
0.140***
(0.026)
GDPpc
it
(GDPpc
it
>λ)
0.072***
(0.017)
0.019**
(0.010)
0.133***
(0.024)
TRADE
it
0.046**
(0.019)
0.026**
(0.013)
0.061**
(0.025)
CO
2i,t1
0.928***
(0.014)
0.951***
(0.011)
0.881***
(0.017)
Constant 0.607***
(0.154)
0.332***
(0.097)
1.091***
(0.203)
NT 4004 1310 2694
N87 27 60
Notes: The values in parentheses are the standard errors. *, **, and ***, respectively, denote
significance at 10%, 5%, and 1% levels. Nand NT are, correspondingly, the numbers of countries
and the effective number of observations. NT
TH
shows the number of observations above the
estimated data-driven threshold level
114 F. Taşdemir
Table 1reports the dynamic panel threshold estimation results of Eq. (2). The
endogenously determined threshold value is almost 10 for the whole sample. As
reported by the Table, this threshold value is included within the 95% confidence
interval. This may suggest that income per capita provides a significant threshold
effect. The data-driven estimated threshold value corresponds to $21,778 per capita
income level which is slightly higher than the mean that is around $13,000. The high
regime contains almost 30% of the observations. The income elasticity of pollution
is 0.09 in economies with per capita income is less than $21,778 while it is around
0.07 in countries with per capita income is higher than $21,778. This empirical
finding may suggest that income per capita leads to higher CO
2
emissions, albeit this
impact is slightly lower in high income economies. This may also suggest that there
is a monotonically increasing relation between income per capita and pollution in
contrast to the maintained inverted-U shaped EKC. According to the results, trade
openness (TRADE) appears to provide an improvement in environmental quality.
The estimated coefficient for lagged emission may indicate that countries with high
per capita CO
2
emissions tend to experience a faster decrease in emissions.
The data-driven estimated threshold is almost 10.1 for the advanced economies.
The endogenously determined threshold value is contained within the 95% confi-
dence interval. This provides an empirical support to the significant thresholding
effect of income per capita. The endogenously determined threshold value corre-
sponds to $25,197 per capita income level with almost 75% of the observations are
in the high regime. This threshold is slightly lower than the mean which is almost
$34,000. The income elasticity of CO
2
emissions is negative and statistically
significant suggesting higher income increases the environmental quality, albeit
the estimated coefficient for income per capita is almost the same in both regimes.
This may also suggest that there is a monotonically decreasing relationship between
income and pollution in advanced economies. An increase in trade openness leads to
lower CO
2
emissions. The coefficient for lagged CO
2
emissions suggests that
ecological convergence appears to be hold in advanced economies.
The endogenously determined threshold value of income per capita is around 8.3
for emerging market and developing economies. The data-driven estimated thresh-
old lies within the 95% confidence interval suggesting the presence of significant
thresholding effect of income per capita. The threshold value is almost the same with
the mean and corresponds to $3940 per capita income level with almost 45% of the
observations are in the high regime. As compared to advanced economies, the
threshold level of income per capita is substantially much lower in emerging market
and developing economies. The income elasticity of CO
2
emissions is 0.14 in
economies with per capita income level is lower than $3940 while it is around
0.13 in economies with per capita income level is higher than $3940. An increase in
per capita income leads to higher CO
2
emissions, albeit the income elasticity of
pollution is slightly lower in the high regime. In contrast to the postulated inverted-U
shaped EKC, this empirical finding may suggest that there is a monotonically
increasing relation between income and pollution. Higher trade openness increases
CO
2
emissions. The estimated coefficient for lagged CO
2
emissions indicates that
Development, Trade Openness, and Pollution: Is there any Threshold? 115
countries with high per capita CO
2
emissions tend to experience a faster decrease in
pollution.
4 Thresholding Effect of Trade Openness
To investigate whether trade openness (TRADE) provides data-driven threshold for
the impact of trade on CO
2
emissions, we consider the following dynamic equation:
CO2,it ¼αiþα1CO2,it1þα2TRADEit TRADEit λðÞþα3TRADEit TRADEit λðÞþ
α4GDPpcit þu2it
ð3Þ
Table 2reports the dynamic panel threshold estimation results for Eq. (3).
Accordingly, trade openness provides data-driven threshold in explaining the impact
of trade on CO
2
emissions. The mean of trade openness (as a percent of GDP) is
around 74 for the whole sample. The endogenously determined threshold value of
trade is 81 which is almost the same with the mean and around 35% of the
observations are in the high regime. Trade openness leads to a decrease in CO
2
emissions in the high regime (TRADE >81.22) consisting of more trade open
Table 2 Thresholding effect of trade openness
Whole
sample
Advanced
economies
Emerging market and developing
economies
Threshold
TRADE
it
81.22 191.55 115.71
95% CI [41.83;
100.05]
[51.98; 210.58] [109.46; 116.55]
NT
TH
1384 156 291
TRADE
it
(TRADE
it
λ)
0.017
(0.024)
0.042***
(0.013)
0.018
(0.026)
TRADE
it
(TRADE
it
>λ)
0.050***
(0.015)
0.030***
(0.009)
0.054**
(0.021)
GDPpc
it
0.045***
(0.010)
0.012*
(0.007)
0.113***
(0.014)
CO
2i,t1
0.944***
(0.008)
0.950***
(0.009)
0.885***
(0.011)
Constant 0.309***
(0.080)
0.265***
(0.073)
0.876***
(0.110)
NT 3942 1254 2688
N87 27 60
Notes: The values in parentheses are the standard errors. *, **, and ***, respectively, denote
significance at 10%, 5%, and 1% levels. Nand NT are, correspondingly, the numbers of countries
and the effective number of observations. NT
TH
shows the number of observations above the
estimated data-driven threshold level
116 F. Taşdemir
economies. This finding may suggest that there is a certain threshold level of trade
openness to reap the benefits in terms of environmental enhancement. The income
elasticity of pollution is positive and statistically significant suggesting higher
income increases the pollution. There is an ecological convergence in per capita
CO
2
emissions for the whole sample.
The data-driven estimated threshold of trade openness is around 192 for the
sample of advanced economies with almost 13% of the observations are in the
high regime. As compared to the mean of trade, which is around 97, this threshold
value may be interpreted as slightly high. Trade openness provides an improvement
in environmental quality in both regimes. This is mainly in line with the empirical
findings by Managi et al. (2009) and Aklin (2016) indicating that industrialized
countries mainly consist of advanced economies with high environmental standards
may locate dirty industries to lax environmental regulations prevailed developing
economies by trade linkages. The income elasticity of pollution is negative and
statistically significant suggesting that an increase in income leads to a decrease in
CO
2
emissions. The estimated coefficient for lagged pollution suggests that
advanced economies converge to each other in terms of per capita CO
2
emissions.
The endogenously determined threshold value of trade is almost 116 in emerging
market and developing economies with around 11% of the observations are in the
high regime. Considering the mean of trade is 64, the data-driven estimated thresh-
old may be interpreted as slightly high. Trade openness leads to an increase in CO
2
emissions in more trade open economies. This finding is consistent with the “stuck at
the bottom”explanation provided by Porter (1999) suggesting that industrializing
countries mainly consist of emerging market and developing economies may have
lax environmental standards leading them to have a comparative advantage in the
production of pollution intensive goods. The income elasticity of pollution is
positive and statistically significant suggesting that an increase in income rises
pollution. There is an ecological convergence in per capita CO
2
emissions for the
sample of emerging market and developing economies.
5 Conclusion
The conventional environmental Kuznets curve (EKC) posits an inverted-U shaped
relationship between pollution and income per capita that represents the aggregate
measure of economic activities. Accordingly, income leads to pollution up to a
certain threshold beyond which income leads to improvement in environment.
Therefore, environmental economists often suggest that income is both the cause
and cure for environmental pollution. The bulk of the literature suggests that trade
openness is also one of the most important determinants of environmental degrada-
tion. In this context, the main aim of this study is to investigate the relationship
between income per capita, trade openness, and pollution in 87 advanced and
emerging market and developing economies over the 1970–2019 period.
Development, Trade Openness, and Pollution: Is there any Threshold? 117
In the context of development, trade openness, and pollution, this study, first,
investigates whether income per capita provides data-driven threshold for the impact
of income per capita on pollution. Then, we examine whether the level of trade
openness matters for the effect of trade on pollution. We investigate these crucially
important research questions by employing dynamic panel threshold procedure of
Kremer et al. (2013).
We find that, for a given level of trade openness, income per capita provides data-
driven estimated threshold for the impact of income per capita on pollution. This
threshold value is around $25,000 for advanced economies and $3900 for emerging
market and developing economies. In income levels above and below the endoge-
nously determined threshold, the income elasticity of pollution is negative and
significant in advanced economies while it is positive and significant in emerging
market and developing economies. In contrast to the maintained inverted-U shaped
EKC, our estimation results suggest that the relationship between per capita income
and pollution is monotonically decreasing in advanced economies while monoton-
ically increasing in emerging market and developing economies. This empirical
finding may suggest that the composition and technique effects explanations appear
to be the case in advanced economies while the scale effect postulation appears to be
hold in emerging market and developing economies.
We also find that, for a given level of income per capita, trade openness provides
data-driven threshold for the impact of trade on pollution. The endogenously
estimated threshold value for trade openness is around 190 in advanced economies
while it is almost 110 in emerging market and developing economies. Trade
openness leads to environmental improvement in advanced economies. On the
other hand, trade openness increases pollution in more trade open emerging market
and developing economies. In this context, Hermele (2002) notes that even if we live
in a servicified economy represented by higher services sector share in GDP, we can
benefit from the industrial goods produced elsewhere mainly by trade linkages. This
is also consistent with the “stuck at the bottom”explanation provided by Porter
(1999) suggesting that trade openness allows industrialized or servicified economies
with strict environmental regulations to locate energy and pollution intensive indus-
tries into the industrializing countries with lax environmental standards.
The empirical findings in this study suggest that income and trade openness are
important determinants of CO
2
emissions. The pulling and pushing impacts for
better environment may lead the countries to invest in technologies that provide
reduction in emissions. Given the recent rise in greenhouse gas emissions mostly
sourced in CO
2
emissions, environmental problems may be considered as universal
requiring cooperative solutions (Bhagwati, 1993). In this context, establishment of
standardized environmental regulation to be able to trade has a strategic importance.
This is much more important for emerging market and developing economies to reap
the environmental benefits. Environment friendly proactive strategic management
systems, incentivization of green investments, supporting the employment of alter-
native energy sources like solar and wind energies are all, indeed, crucially important
policy suggestions that contribute to the sustainable development goals. All these
118 F. Taşdemir
indeed suggest that countries may better to design and enforce sustainable develop-
ment policies by placing the greener economy at the core.
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120 F. Taşdemir
Analysis of the Functioning of the Energy
Safety Conditions
Diana Stepanova, Yulia Finogenova, Gabor Pinter, and Ismail Ismailov
1 Introduction
It is worth noting that in 2020, due to the depreciation of the ruble, the dynamics of
deposits in nominal terms was quite good. The volume of energy risks increased by
8% (2.4 trillion rubles), which is not much different from the dynamics of recent
years. Thus, almost half of the increase in nominal terms is a currency revaluation
(Yüksel et al., 2021b). The low real growth rate in 2020 is due to the low profitability
of energy risks, the rates on which are at a historically low level. Lower deposit rates
have increased the public’s interest in alternative methods of saving —investments
in securities, mutual funds, life insurance, and others. Also, the promotion of
mortgages and the record level of their issuance last year also limited the growth
of deposits, as the population spent their savings in banks on the initial payment
(Dinçer et al., 2020). It should be noted separately that during the pandemic and
restrictions, the income of certain categories decreased citizens, which limited their
ability to create savings. Against this background, the share of individual deposits in
the banking system’s liabilities decreased significantly, and as of January 1, 2021, it
amounted to 31.6% against 34.2% as of January 1, 2020, and 33% as of January
1, 2019.
D. Stepanova (*) · Y. Finogenova
Plekhanov Russian University of Economics, Russian Federation, Moscow, Russia
e-mail: Finogenova.YY@rea.ru
G. Pinter
Circular Economy University Center, Renewable Energy Research Group University of
Pannonia, Veszprém, Hungary
I. Ismailov
Financial University under the Government of the Russian Federation, Russian Federation,
Moscow, Russia
e-mail: iismailov@fa.ru
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_11
121
We have prepared a rating of Russian banks by the volume of individual deposits
as of January 1, 2021. The rating includes 320 banks that attract funds from the
population, and for which reports are published in accordance with form No. 101 on
the website of the Central bank of the Russian Federation. The rating methodology
provides for aggregation of data from banks ‘current statements. Of the credit
institutions represented in the rating, 46.5% of banks in 2020 were able to demon-
strate positive growth rates of attracted funds of individuals. For comparison, in
2017–2019, the share was more than 50%, and in 2016 and 2015, 62% and 76%,
respectively. Thus, the coronavirus epidemic, low interest rates and falling revenues
significantly affected the share of banks with an increase in deposits. In the quarterly
context of the situation in 2020, the dynamics of the share of banks with growth was
very high volatile. In particular, in the fourth quarter, deposits increased by only 39%
compared to more than 50% in the first and third quarters. It should be noted
separately that in the second quarter, which saw the main restrictions due to the
coronavirus, the share of banks with an increase in deposits fell to 33%. Thus, the
share of banks with an increase in deposits has not yet stabilized and is at a relatively
low level.
2 Literature Review
Among different size groups of the TOP 300 banks in 2020, ranked by deposit size
and divided by one hundred banks, the result fluctuated quite strongly. For example,
54% of banks out of the TOP 100 showed an increase in deposits. At the same time,
44% of banks in the second hundred (from 101 to 200 places) showed an increase in
deposits. While 42% of banks ranked 201st to 300th had an increase in the
population’s energy risks. It should be noted separately that the largest credit
institutions from the rating had an even higher share with growth, for example, the
TOP 25 banks had an increase at 68%, and in the top ten, all banks were character-
ized by an increase in deposits (Mikhaylov, 2018c; Mikhaylov et al., 2019;
Melnichuk et al., 2020; Nie et al., 2020; Moiseev et al., 2021; Qiu et al., 2020;
Grilli et al., 2021).
The volume of energy risks controlled by the TOP 100 banks increased by 8%
relative to the result of the same banks as of January 1, 2020. Banks of the second
hundred (from 101 to 200 places) showed a decrease in total deposits by 3%. While
the banking group from 201 to 300 places reduced deposits by a total of 6%.
According to experts RIA Rating, the good result of large banks is due to the
continued growth of concentration and, consequently, the flow of customers from
small and medium-sized banks to large ones, as well as the fact that large banks are
characterized by a greater share of currency energy risks (Bhuiyan et al., 2021; Dong
et al., 2021; Mikhaylov, 2021b; Liu et al., 2022; Saqib et al., 2021; Zhou et al., 2021;
Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka et al., 2018; Sunchalin et al.,
2019; Uandykova et al., 2020; Udalov, 2021; Yüksel et al., 2021d,2021a,2021c;
Dorofeev, 2020).
122 D. Stepanova et al.
The difference in the dynamics of individual deposits in different size groups led
to a further increase in the concentration of household funds. The share of TOP-10
credit institutions in the energy risk market increased by 3.3 percentage points in
12 months to 80.8% as of January 1, 2021. The TOP 25 banks in the current rating
already account for 90.4% of deposits (+1.8% in 12 months). At the same time, the
share of the TOP 100 increased by 0.4 percentage points to 98.6% (Dayong et al.,
2020; Mikhaylov et al., 2018; Nyangarika et al., 2018; Danish et al., 2020; Danish
et al., 2021; Lisin, 2020; An et al., 2021; Ivanyuk & Berzin, 2020; Ivanyuk &
Levchenko, 2020; Ivanyuk et al., 2020; Ivanyuk, 2018; Ivanyuk & Soloviev, 2019;
Fang et al., 2021; Li et al., 2020; Du et al., 2020; Uyeh et al., 2021).
In 2020, among Russian banks, the best dynamics was demonstrated by banks
with state participation. For 12 months of 2020, state-owned banks were able to
nominally increase the amount of funds raised by the population by 8.6%. At the
same time, private banks showed a slightly smaller increase—7.3%. At the same
time, the result of banks with foreign control participation was +5.8% (Denisova
et al., 2019; Nyangarika et al., 2019a,2019b; Huang et al., 2021a,2021b;
Mikhaylov, 2018a,2018b,2022; Meynkhard, 2019; Conteh et al., 2021; Mikhaylov
et al., 2019; Meynkhard, 2020).
The leader in the relative dynamics of deposits, among the TOP 100 banks in
terms of energy risks, was a private bank—Energomashbank, which increased its
deposit portfolio by more than two times in 2020. The second-largest bank in terms
of growth among the hundred largest banks was the Bank Combined capital, the
volume of energy risks, which increased by 56% in 12 months. Deposits also
showed good dynamics in 2020 BANK ORENBURG and Lanta-Bank, the growth
of deposits in which amounted to 46% for each of the banks (Mukhametov et al.,
2021; Candila et al., 2021; Liu et al., 2021).
A significant amount of energy risks were also insured in 2020 VTB Bank (+283
billion rubles), Gazprombank (+236 billion rubles) and ALFA-BANK (+231 billion
rubles). Thus, three state-owned banks provided just under 80% of the total increase
in deposits of individuals in 2020. On the other hand, significant negative dynamics
were demonstrated by: Bank Vozrozhdenie, HCF Bank and the Ministry of Finance,
and the decrease in deposits from these banks amounted to 81, 46, and 45 billion
rubles, respectively (An et al., 2019a,2019b,2020a,2020b,2020c; Mikhaylov et al.,
2020; Mikhaylov & Tarakanov, 2020; Moiseev et al., 2020; Gura et al., 2020;
Dooyum et al., 2020; Mikhaylov, 2020a,2020b,2020c; Yuan et al., 2021; Wang
et al., 2019; Mikhaylov et al., 2021b; Mikhaylov, 2021a; Varyash et al., 2020; Zhao
et al., 2021; An & Mikhaylov, 2020; Alwaelya et al., 2021; Yumashev &
Mikhaylov, 2020; Yumashev et al., 2020; Mikhaylov et al., 2021a; Mutalimov
et al., 2021; Morkovkin et al., 2020a,2020b; An & Mikhaylov, 2021).
Analysis of the Functioning of the Energy Safety Conditions 123
3 Results
Despite the fact that the energy risk insurance system is built on the basis of world
experience and international practice and performs its main functions, this does not
deprive it of a number of certain shortcomings that require the development and
improvement of the system.
The fact that the energy risk insurance system has ceased to operate as steadily as
it did before is evidenced by several facts at once: information on the official website
of the Energy Risk Insurance Agency has ceased to be updated regularly, as it was
before; information on the review of the energy risk market, on liquidation pro-
cedures and sanitized organizations has disappeared from public access (most often,
recently, this information can only be found in certain periodicals).
All this contributes to the appearance of a cautious and anxious state of projects,
which begin to suspect the Energy Risk Insurance Agency of providing false data
and wanting to save on the interests of projects (Dinçer et al., 2019). If this trend
continues, it is possible that the financial system will collapse and the energy risk
insurance system will default in the event of a long-forgotten phenomenon such as
“project panic.”In order to avoid disrupting the stability of the energy risk insurance
system, it is necessary to solve a number of problems, as well as to review certain
points of federal legislation (Table 1).
It is still too early to talk about the complete overcoming of the crisis in the
segment of term deposits of citizens. This is driven by two main nuances. Moreover,
they also provoked the initial problems of these products.
Table 1 SWOT- analysis of the current system of energy risk insurance in Russia
Strengths Weaknesses
•Formed insurance infrastructure.
•Limited range of insurance protection objects.
•Established relationships with credit institutions.
•Consolidation and reorganization of the insurance
business.
•Experience of past crises.
•High interest rates on deposits for companies.
•Unwillingness of insurers to enter into such contracts.
•Low capitalization.
•Low customer focus of the busi-
ness.
•Extremely high case management
costs.
•Low business profitability.
•Low level of reliability.
•Low level of staff qualification.
•Unstable situation caused by the
pandemic.
Opportunities Threats
•Low level of insurance penetration.
•Growing interest in the insurance industry on the part of
the state.
•Reform of the insurance industry supervision system.
•Growth of investment attractiveness of individual
insurers.
•Potential benefit when applying for an insurance policy,
since the payment of insurance may significantly exceed
the amount of the deposit.
•Instability in global financial
markets.
•Insufficient quality of supervision
of insurance companies.
•Lack of supervision of insurance
intermediaries.
•Dumping.
•Fraud.
124 D. Stepanova et al.
First, a pandemic. Although it is on the wane, but everyone is preparing for the
second wave. Moreover, its consequences may be even more negative. After all, not
all business sectors and citizens recovered from the first one. Therefore, most likely,
you will have to accumulate your savings again, directing them to everyday needs.
Secondly, the profitability of energy risks is steadily approaching the level of
inflation, thus bringing the real profit of products to zero. That is, their use becomes
relevant only for the safety of their savings, but not for multiplication. This pushes a
number of Russians to extend their deposit agreements.
Leading Russian experts and scientists identify the following main problems
related to the formation and functioning of the energy risk insurance system:
1. A fixed amount of state guarantees established at the state level (since the form
of the Energy Risk Insurance Agency is state-owned), which is most often unfair
in calculation and insufficient to meet the interests of projects. This implies
non-compliance with the proportionality and direct dependence of the estimated
amount of insurance compensation, in which, in the event of an increase in
investment activity of the population, the amount of compensation remains
unchanged, although logically it should increase, that is, it should have a
dynamic character.
2. The system of contributions to the Mandatory Energy Risk Insurance Fund is
outdated. All banks deduct contributions at a single basic percentage set by the
Central Bank of the Russian Federation using the flat scale method, without
taking into account the level of risks of each of them.
For example, when considering the same Sberbank, it can be noted that the
bank has a fairly high level of reliability, the risk of license revocation is
minimized, and we can say that it is practically absent, since their energy risks
are insured.
But despite all this, it is this bank that is the main source of financing for the
Mandatory Energy Risk Insurance Fund, since it forms a large part of it, by
attracting a significant amount of deposits and deducting a percentage of
insurance premiums calculated from the balances on deposit accounts. This is
financially unprofitable for a bank, but it is undoubtedly very convenient for an
Energy Risk Insurance Agency. This issue has already been raised several times
by the management of several major Russian banks, including the Board of
Sberbank, but so far it has remained unresolved.
3. The system of energy risk insurance in our country, unlike the world experience
of using this system, covers a limited range of objects of insurance protection.
Energy risk insurance systems in many foreign countries have been successfully
insuring deposits of legal entities for quite a long time.
4. Insufficient public awareness of the operation of the energy risk insurance
system and hidden information about the actual reliability of many banks.
Despite the dissemination of information by the Energy Risk Insurance Agency,
banks, and the mass media, there are still a considerable number of citizens in
our country who do not know anything at all about the existence of the energy
Analysis of the Functioning of the Energy Safety Conditions 125
risk insurance system, or have a minimum of information, and do not know how
it functions until they face certain problems directly related to it.
In addition, some unscrupulous banks hide information about their unfavor-
able situation behind attractive rates, which is also deliberately not reported to
the “ordinary”project. And many citizens simply do not trust banks, as they
firmly believe that cash will be preserved better than in a deposit account, which
indicates problems with financial literacy of the population as a whole.
5. Fraudulent actions in the field of energy risk insurance system. Among the main
fraudulent schemes, there is the fragmentation of energy risks, as well as the
fictitious formation of energy risks, with the aim of intentionally obtaining
illegal insurance compensation.
These schemes usually involve smaller banks that are part of the energy risk
insurance system.
6. A very significant problem today is the policy of the Central Bank of the Russian
Federation aimed at“improving”the banking sector. This measure, of course, is
long overdue and necessary, but it should be borne in mind that the “recovery”
procedure should be carried out more intelligently and expediently, without
exposing the energy risk insurance system to risks.
When banks are being rehabilitated and liquidated on a large scale, it is quite
difficult to fill up the Mandatory Energy Risk Insurance Fund in a short time
with only insurance premiums from participating banks.
The Fund’s insufficiency necessitates the use of borrowed funds by the
Energy Risk Insurance Agency, which is always the beginning of the develop-
ment of an even deeper and more difficult problem to solve. This is evidenced by
the current statistics and forecast data determined for the future, which were
discussed in more detail in the previous paragraph.
Thus, it is worth noting that the current situation in the energy risk insurance
market in our country requires urgent decision-making on many existing prob-
lems, improving the system itself and the legislative framework, as well as other
possible options to minimize the risk of a system default, which may inevitably
lead to the collapse of the country’s banking system as a whole.
7. Fraud in the energy risk insurance system by bank employees. Bank managers
and shareholders have learned to deceive supervisors and investors before they
know it. The stolen funds are used by them to finance their personal businesses,
as well as withdraw funds from projects to offshore zones.
This is done through the use of fabricated reports, the creation of forged
documents, and bribes offered to employees who acted as representatives of
supervisory authorities, such as the Central Bank of the Russian Federation and
the Energy Risk Insurance Agency.
8. The problem of off-balance sheet projects. When checking, the project data is
not available in the bank’s electronic databases, double-entry accounting is
maintained, and, accordingly, the bank’s balance sheet is distorted. As a result,
when the bank’s liquidation process begins, discrepancies between actual results
and reported data are revealed, but this gap is already revealed too late.
126 D. Stepanova et al.
9. Placement of deposits by large projects in foreign banks. The problem is that due
to the limited amount of insurance compensation, energy risks in domestic
banks are placed mainly by the middle class of citizens in terms of income.
Large Russian millionaires and billionaires prefer foreign banks to Russian
ones, namely those that guarantee 100% payment of insurance indemnities.
This leads to an outflow of potential Russian deposits abroad, which also has
an impact on the banking system as a whole.
10. Functioning of the energy risk insurance system in the Russian Federation
without taking into account (with minimal consideration) moral hazard. Since
the energy risk insurance system in our country is state-owned, and all respon-
sibility for the occurrence of an insured event falls on the shoulders of the
Energy Risk Insurance Agency, irresponsible behavior of other participants in
the system is very often observed. On the part of banks, irresponsibility consists
in insufficient informing customers about changes in their financial situation, as
already mentioned earlier. Projects are irresponsible in choosing a bank to place
a deposit with the maximum rates, without taking into account the degree of risk
of the bank.
4 Conclusions and Discussion
In order to ensure the stable and uninterrupted operation of the energy risk insurance
system, the Agency: pays compensation for deposits of individuals, including sole
proprietors, as well as small businesses in the event of an insured event against a
bank participating in the energy risk insurance system; maintains a register of banks
participating in the energy risk insurance system; mandatory controls the formation
of the energy risk Insurance Fund, including through bank contributions; manages
the funds of the Energy Risk Insurance Fund. risks.
According to the data of the Energy Risk Insurance Agency, in 2019, the number
of participants in energy risk insurance amounted to 723 banks. By 2020, this
number has significantly decreased—to 696 (a decrease of 27 participants in the
country compared to the previous period), including existing banks licensed to work
with individuals in terms of attracting and placing deposits—372; existing credit
institutions that previously accepted energy risks, but currently lost the right to
attract funds from individuals 6; banks that have a license to work with individuals
in terms of attracting and placing deposits -, in the process of liquidation—318.
In total, during the 15 years of operation of energy risk insurance, 481 insured
events occurred, the total amount of insurance liability for which amounted to 1.92
trillion rubles for 9.3 million projects.
Analysis of the Functioning of the Energy Safety Conditions 127
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How to Improve Energy Investments in
Russia
Elizaveta Ibragimova and Mir Sayed Shah Danish
1 Introduction
The extension of insurance coverage to legal entities will be a stimulating factor for
such lenders to accumulate financial resources in the banking sector of the Russian
Federation. Expanding the scope of insurance will require a review of the current
model of the energy risk insurance system, which currently includes only those
banks whose license provides for the right to insure energy risks. Extending insur-
ance coverage to legal entities, while maintaining the current conditions for manda-
tory participation in the energy risk insurance system, on the one hand, may
contribute to the outflow of funds of legal entities from credit institutions that are
not participants in the energy risk insurance system, and on the other hand, it may be
possible to increase the number of employees who are not participants in the—may
lead to the formation of a risky business model for such credit institutions.
This creates a moral hazard that depends on the effectiveness of market discipline.
It is assumed that an effective market discipline that reduces the degree of moral
hazard is a situation in which the project carefully monitors the financial condition of
the bank, and, if there is a risk of loss of funds, begins to demand an increase in the
deposit rate, or withdraws money from this bank altogether. Thus, there is a change
in the structure of the bank’sfinancial assets, which reduces its stability. The main
thing in this mechanism is the close attention of the project to the bank. Now, since
the project already knows that its money is protected, this mechanism does not work,
E. Ibragimova (*)
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
M. S. S. Danish
Strategic Research Projects Center, University of the Ryukyus, Okinawa, Japan
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_12
133
which leads to certain problems and imposes additional burden and responsibility on
the control bodies.
It is worth noting that what was in operation 15–20 years ago is no longer suitable
for functioning at the present time. That is why it is necessary to make drastic
changes in the processes of formation and functioning of the system, which must
necessarily have legislative consolidation.
So, there is no need to“reinvent the wheel,”since there are many types and
interpretations of energy risk insurance systems that are successfully used by other
countries, it is only necessary to shift this experience to Russian conditions. It is
these urgent changes that will be discussed in the next chapter of this study.
2 Literature Review
Taking into account international experience, it is advisable to expand the range of
persons (entities) covered by the protection provided by the energy risk insurance
system by including legal entities’accounts and deposits in the system (Bhuiyan
et al., 2021; Dong et al., 2021, Mikhaylov, 2021b; Liu et al., 2022; Saqib et al., 2021;
Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka et al., 2018; Sunchalin et al.,
2019; Uandykova et al., 2020; Udalov, 2021; Yüksel et al., 2021a,2021b,2021c;
2021d; Dinçer et al., 2019; Dorofeev, 2020).
We believe that funds of legal entities whose activities are related to the provision
of financial services and are based, in particular, on a professional assessment of the
stability of financial institutions and counterparties should be excluded from the
scope of energy risk insurance (Mikhaylov, 2018c; Dinçer et al., 2020; Qiu et al.,
2020; Mikhaylov et al., 2019; Melnichuk et al., 2020; Nie et al., 2020; Moiseev
et al., 2021; Zhou et al., 2021; Grilli et al., 2021).
In this regard, it is proposed not to extend insurance coverage to bank accounts
(deposits) of credit institutions; professional participants in the securities market;
trade organizers; clearing organizations; microfinance organizations; consumer
credit cooperatives; insurance organizations; insurance brokers; mutual insurance
companies; non-state pension funds; management companies of investment funds
(mutual investment funds) and non-state pension funds; specialized depositories of
investment funds (mutual investment funds). private pension funds; pawnshops;
leasing companies (Dayong et al. 2020; Mikhaylov et al., 2018; Nyangarika et al.,
2018; Danish et al., 2020,2021; Fang et al., 2021; Li et al., 2020; Lisin, 2020;An
et al., 2021; Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020; Ivanyuk et al.,
2020; Ivanyuk, 2018; Ivanyuk & Soloviev, 2019; Du et al., 2020; Uyeh et al., 2021).
Taking into account international experience and recommendations, it is also not
advisable to insure funds of the federal budget placed in credit institutions, funds of
budgets of constituent entities of the Russian Federation and local budgets, funds of
state and other extra-budgetary funds, with the exception of funds of state and
municipal social institutions (for example, educational and medical institutions). It
is debatable to include “funds in settlements”(transfers without opening an account,
134 E. Ibragimova and M. S. S. Danish
letters of credit, etc.) in the perimeter of the energy risk insurance system, taking into
account (Yuan et al., 2021; Wang et al., 2019): accumulation of such funds on bank
accounts for a relatively short period of time. The inclusion of bank accounts (energy
risks) of individuals in precious metals in the insurance coverage period seems
impractical due to the predominantly investment nature of such accounts and, as a
consequence, their use by investors who are able to assess certain risks associated
with the dependence of profitability on such accounts (deposits) on market quota-
tions for metal placed on accounts (deposits) (Denisova et al., 2019; Nyangarika
et al., 2019a,2019b; Huang et al., 2021a,2021b; Mikhaylov, 2018a,2018b,2022;
Meynkhard, 2019; Mikhaylov et al., 2019; Conteh et al., 2021; Meynkhard, 2020).
In addition, it does not seem appropriate to include individual legal entities in the
insurance perimeter of accounts (deposits), for which the limit of insurance com-
pensation is generally insignificant (An et al., 2019a,2019b,2020a,2020b,2020c;
Mikhaylov, 2019,2020a,2020b,2020c,2021a; Mikhaylov & Tarakanov, 2020;
Moiseev et al., 2020; Gura et al., 2020; Dooyum et al., 2020; Mikhaylov et al.,
2021b; Varyash et al., 2020; Zhao et al., 2021; An & Mikhaylov, 2020; Alwaelya
et al., 2021; Yumashev & Mikhaylov, 2020; Yumashev et al., 2020; Mikhaylov
et al., 2021b; Mutalimov et al., 2021; Morkovkin et al., 2020a,2020b;An&
Mikhaylov, 2021; Mukhametov et al., 2021; Candila et al., 2021; Liu et al., 2021).
In this regard, two possible solutions can be considered for including legal entities
‘accounts in the insurance perimeter: the first option: including only the accounts of
medium-sized enterprises (in addition to small ones), state and municipal unitary
enterprises, state and municipal budget institutions of a social nature (for example,
educational and medical institutions) in the insurance perimeter; the second option:
including all legal entities in the insurance perimeter, except for legal entities that are
executors (lead executors) of the state defense order that have opened there are
separate accounts with authorized banks, and business strategic companies, with the
exception of those related to small and medium-sized enterprises, as well as state-
owned corporations.
In order to gradually adapt the banking sector to major regulatory changes, it is
possible to consider the feasibility of gradually reforming the energy risk insurance
system.
3 Methods
At the first stage, insurance coverage can be extended to funds placed in credit
institutions by certain types of socially oriented non-commercial organizations and
non-profit associations of citizens: non-profit organizations operating in one of the
following organizational and legal forms (horticultural non-profit partnerships;
horticultural non-profit partnerships; homeowners ‘associations; garage and
garage-building cooperatives; housing and housing-building cooperatives; Cossack
societies included in the state register of Cossack associations). Russian Federation
and registered as a legal entity; communities of small indigenous peoples of the
How to Improve Energy Investments in Russia 135
Russian Federation registered as a legal entity; religious organizations) non-profit
organizations performing socially useful services that meet the requirements
established by Federal Law No. 7-FZ of 12.01.1996 “On Non—Profit Organiza-
tions,”information about which is contained in the register of non-profit organiza-
tions performing socially useful services, maintained in accordance with the
specified Federal Law.
In addition, at the first stage, we believe it is possible to include in the insurance
perimeter special accounts opened in accordance with the norms of the Housing
Code of the Russian Federation, where funds of the capital repair fund are placed
(in fact, these are contributions of individuals for capital repairs of an apartment
building), regardless of who is the owner of the special account of the capital
repair fund.
At the first stage, it is also advisable to establish an increased limit of insurance
compensation in the amount of ten million rubles, paid to individual projects in the
following special life situations: sale of residential premises and (or) land plot (part
of land plot) on which a residential building (part of a residential building), garden
house (part of a garden house) is located; receipt of inheritance; compensation for
damage caused to life, health, or personal property, receipt of social payments and
benefits; execution of a court decision; receipt of grants in the form of subsidies;
receipt of funds from charitable organizations by collecting donations or other
voluntary targeted transfers for the treatment of serious illnesses of the project or
its close relatives; expenses related to a serious illness of the project or a member of
its family. At the same time, the individual project’s right to receive an increased
amount of insurance compensation for the specified reasons will be retained only for
three months from the date of crediting the corresponding funds to the project
account.
According to preliminary estimates of the state corporation “Energy Risk Insur-
ance Agency,”the transformation of the mechanism for forming the mandatory
energy risk insurance fund in connection with these changes will not be required.
At the next stage, the Bank of Russia is considering the possibility of including
other legal entities in the perimeter of the energy risk insurance system and, taking
into account the need for consistent regulation, the possibility of including funds
deposited in the accounts of notaries, lawyers, and other persons whose accounts are
open for professional activities.
4 Results
We can distinguish the following proposals for the development of the Russian
energy risk insurance system:
–Voluntary deposit insurance of the corporate sector may become popular if
insurers develop favorable conditions and adequate tariffs for these services.
136 E. Ibragimova and M. S. S. Danish
–Further development of such a function of the energy agency as financial reha-
bilitation of commercial banks will help to improve the situation in problem
banks even before it becomes irreversible and entails the payment of project
reimbursements from the fund.
–Voluntary insurance of energy risks of individuals (the amount of excess over the
amount subject to mandatory energy risk insurance) will allow you to keep
temporarily available funds in one bank.
–Improving the financial education of citizens through training, informing the
general public in the field of banking services for individuals, in particular
regarding energy risk insurance.
–Improving the legal system of energy risk insurance and drawing up an action
plan in case of a crisis of the entire banking system implies further development
of the policy and legislative framework for a mandatory and structured system of
energy risk insurance.
In general, the established energy risk insurance regime is characterized as a
positive innovation that ensures the stability and sustainability of the Russian
banking system. The trust of projects that now have the state-backed confidence
that in the event of a credit institution’s bankruptcy, they will receive a refund of the
invested funds is restored. The inflow of energy risks to private banks is increasing,
and the scale of financial intermediation of the country’s banking system is
increasing.
This also has additional advantages for credit institutions: the social responsibility
of banks, which consists in ensuring the safety of citizens’savings, is being
strengthened. Among other things, the system is a kind of mechanism for ensuring
its own security and reducing the level of risks.
Thus, the insurance of bank energy risks has the following trends today:
1. Remote communication channels with customers and participants of energy risk
insurance are actively developing.
2. The management system of the energy agency is being improved in terms of
ensuring transparency and openness of the Agency’s activities in order to attract
the largest number of projects and strengthen the trust of existing ones.
3. There is an expansion of the functional responsibilities of the Energy Risk
Insurance Agency in terms of the full transfer of powers of the role of sanator
and liquidator of banks from the Bank of Russia to the Energy Agency.
4. The Agency implements its own standards in terms of ensuring the sustainable
functioning of the banking energy risk insurance system in the country and
abroad.
5. It is planned to expand the list of objects of insurance protection by including
legal entities in it.
6. Introduction of new and expansion of existing information portals (mass media,
newspapers, advertisements, reference books, leaflets, etc.) dedicated to the
existence of a system of insurance of bank energy risks (deposits) and the
mechanism of functioning of this system.
How to Improve Energy Investments in Russia 137
7. Holding exhibitions, fairs, seminars, presentations in terms of highlighting new
products in the field of energy risk insurance, as well as dissemination of
information about the possibility of participating in this system.
8. Expansion and establishment of partnership relations of the Agency outside the
country with international organizations (Federal Deposit Insurance Corporation
in the USA, State Energy Risk Insurance Fund in Germany, Energy Risk
Insurance Fund in Turkey, Energy Risk Guarantee Fund in Poland, etc.).
9. Creation of a system of emergency payments related to the increase in the
volume of insurance claims during the crisis, economic stagnation, etc.
10. Minimize and assess possible risks associated with the financial stability of the
energy risk insurance system in order to increase liquidity.
In conclusion, I would like to say that the deposit insurance system is very
important for the banking system and for the economy as a whole. Because this
system acts as a guarantee of the security of monetary savings of the country’s
population.
For the sustainability of this system, it is recommended to conduct a competent
and phased monetary policy of the state in terms of insurance, as well as to increase
the financial literacy of the population by creating a transparent insurance system in
general.
Thus, these measures will increase not only the economic well-being of the
country, but also the level of public confidence, which is very important for the
successful development of the country.
5 Conclusions and Discussion
Despite the fact that the energy risk insurance system is built on the basis of world
experience and international practice and performs its main functions, this does not
deprive it of a number of certain shortcomings that require the development and
improvement of the system. In order to avoid disrupting the stability of the energy
risk insurance system, it is necessary to solve a number of problems, as well as to
review certain points of federal legislation.
It is worth noting that what was in operation 15–20 years ago is no longer suitable
for functioning at the present time. That is why it is necessary to make drastic
changes in the processes of formation and functioning of the system, which must
necessarily have legislative consolidation.
Taking into account international experience, it is advisable to expand the range
of persons (entities) covered by the protection provided by the energy risk insurance
system by including legal entities’accounts and deposits in the system. The exten-
sion of insurance coverage to legal entities will be a stimulating factor for such
lenders to accumulate financial resources in the banking sector of the Russian
Federation.
138 E. Ibragimova and M. S. S. Danish
Expanding the scope of insurance will require a review of the current model of the
energy risk insurance system, which currently includes only those banks whose
license provides for the right to insure energy risks.
We believe that funds of legal entities whose activities are related to the provision
of financial services and are based, in particular, on a professional assessment of the
stability of financial institutions and counterparties should be excluded from the
scope of energy risk insurance.
In this regard, it is proposed not to extend insurance coverage to bank accounts
(deposits) of credit institutions; professional participants in the securities market;
trade organizers; clearing organizations; microfinance organizations; consumer
credit cooperatives; insurance organizations; insurance brokers; mutual insurance
companies; non-state pension funds; management companies of investment funds
(mutual investment funds) and non-state pension funds; specialized depositories of
investment funds (mutual investment funds). private pension funds; pawnshops;
leasing companies.
The following proposals can be identified for the development of the Russian
energy risk insurance system: voluntary deposit insurance for the corporate sector
may become in demand if insurers develop favorable conditions and adequate tariffs
for these services; further development of the energy agency’s function as financial
rehabilitation of commercial banks will help improve the situation in problem banks
even before it becomes irreversible and entails the payment of project reimburse-
ments from the fund; voluntary energy agency insurance increasing the financial
education of citizens through training, informing the general public in the field of
banking services for individuals, in particular regarding energy risk insurance;
improving the legal system of energy risk insurance and drawing up an action plan
in case of a crisis of the entire banking system implies further development of the
political and economic policy of the entire banking system. and the legal framework
for a mandatory and structured system of energy risk insurance. Insufficient super-
vision of banks participating in the system, as well as new banks allowed to
participate in the system. At first glance, the selection criteria for banks to participate
in the energy risk insurance system are quite strict, and the verification of banks is
quite thorough. But, judging by the results of statistics, after some time, banks that
were initially recognized as financially stable and successfully developing in order to
participate in the system are recognized as insolvent. The reason why this is
happening is obvious, and the supervision was not strict enough. This problem is
undoubtedly serious and needs to be solved, since without this, there are many banks
that are undergoing the process of rehabilitation or liquidation. The presence of such
an additional problem leads not so much to the replenishment of the Mandatory
Energy Risk Insurance Fund by new participating banks but to the cost of paying
insurance indemnities. Naturally, all the problems listed above are far from the only
ones, but they belong to the main and, in principle, generalizing ones. Based on the
information presented in this chapter, it can be concluded that the insurance system
that operates in our country today, almost in its original form, is already beginning to
lose its relevance, as rapid changes in the insurance market are taking place, what is
How to Improve Energy Investments in Russia 139
happening in the economy requires the same rapid response in the form of improving
the energy risk insurance system and adapting it to new conditions.
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144 E. Ibragimova and M. S. S. Danish
Digital Activist Movements for Energy
Resources: The Case of Greenpeace Turkey
Başak Gezmen
1 Introduction
Information is at a point where everyone can create, access, and use it. In new digital
world, non-governmental organizations that operate independently of the state,
realize activities by setting agenda for different issues in order to create awareness.
In this point, media is the strongest tool when its power and role are considered in
forming public opinion. The power of internet and social media in today’s society is
incontrovertible reality. The awareness-raising studies of NGOs bring together many
people gathered around the same idea in the virtual environment. Besides, awareness
is strengthened with digital activism, which is the fast arena of the digital world.
Therewithal, it is frequently encountered the concepts of running out energy
resources, energy saving, climate crisis, ecological balance, and environmental
literacy in recent time. With regard of these, Greenpeace Turkey, which is one of
the most well-known and active organizations on environmental movements, makes
an effort to raise awareness and take action in many areas about energy within the
scope of digital activist movements.
In this paper, energy-based tweets on Greenpeace Turkey’s twitter account are
investigated and evaluated within the framework of the determined periods. In this
context, the extinction of energy resources and energy saving, the approaches of
NGOs about energy consciousness, which themes on energy were emphasized, and
what should be done about it, solution suggestions are assessed in the scope of
activist movements.
B. Gezmen (*)
The School of Communication, İstanbul Medipol University, Istanbul, Turkey
e-mail: bgezmen@medipol.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_13
145
2 The Transition from Old Social Movements to New Social
Movements
Social movements continue their existence in almost every period of life throughout
human history. This situation can be explained by the reality of objection and
resistance to the process. The concept of social movement is mostly associated
with the modern period. Post-modern term paved the way for the transition to a
different, new life and also, the formation of social movements in modern sense.
Further, Dacheux explained this situation as the emergence of a dramatic opponent-
development which realized with the intersection of the division of the masses and
the depression of nation-states’crisis and parliamentary debates. Hence, the new
social movements are formed at this point. Nevertheless, these movements, which
demonstrate themselves in different fields, are social policy issues such as disarma-
ment, women’s rights, sexual minorities, racist and ethnic groups, environment,
social security, and housing (Dacheux, 2012). In every period of the history, the
ruler and the ruled relationships were inquired within the scope of reconciliation and
conflict. Thus, many different groups who would like to send their demand and
wishes to the government were emerged. The new social movements have busted
with experienced of the changes and the transformations after 1980 that is the term of
post the working-class movements and independence movements which are called
the old social movements. Further, women movements, environmental movements
and peace movements are some of the new social movements. In new term, accel-
eration of capitalist process and globalization arguments, development of multi-
national companies, and new technologic developments have begun to bring the
concept of democracy, human rights, and freedom into the forefront. In addition to
that, they have led to the emergence of the new social movements (Balkaya, 2014).
There are some different points between the old and the new social movements.
In the old social movements, there was gathered around a leader who was accepted
as a hero or a treacherous opponent by the power. Hence, the leaders were in the
center. Otherwise, there are some forms that share the power in the new social
movements. Particularly, it is noteworthy that the participants of the new social
movements are high-level educated and predominantly young people. On the other
hand, the old social movements were based on economic and social problems.
However, the new social movements are based on human rights, democratic rights
and identity, which were not discussed a lot in the past. Besides, the main emphasis
in the new period is shaped around the discourses of diversity and otherness (Ayhan
& Baloğlu, 2019).
“Man is a social being by nature.”is the starting point of Jürgen Habermas’s
philosophical thoughts within his own words. In the Habermas’s philosophy, the
public sphere is defined as the space of free discussion where individuals can leave
from their private spaces and can participate to the discussion as equal citizens, and
have a say on all kinds of social, cultural, and political issues (Torun, 2020).
Furthermore, the theorist stated that the public sphere defines the process of com-
munication, dialog, and negotiation in civil society and the methods and tools used in
146 B. Gezmen
this process. Moreover, the public sphere is the indispensable key of the democratic
and social culture (Ceyhan, 2007). Habermas is a positivist and pragmatic philoso-
pher. Also, he is one of the important representatives of the Frankfurt School.
According to the theorist who focused on the dominance of instrumental rationality
in industrial societies, dwelling on instrumental rationality rather than goals
supported the scientification of politics, and political problems came down to
problems related to technical control. However, the field of public discussion and
negotiation about social goals have been completely forgotten. As the theorist saw,
the criticism is the key path for being an open and non-pressured society. (Tekinalp
& Uzun, 2006). Therewithal, Habermas, who presented the thesis of Structural
Transformation of the Public Sphere in the 1960s, pointed out in this approach
that there is an actual public space where social problems were discussed in the
eighteenth century. Habermas denoted that the effectiveness was provided at this
point, and he specified that these were places of meeting and discussion. There-
withal, human beings had a chance to convey their views to the society within the
framework of the emergence of the press with the invention of the printing press.
Nonetheless, the bourgeois class occupied the public sphere with the dominance of
the industrial capitalist process. With regard of this, Habermas remarked that the
organizing of the media and politics as institutional has caused the collapse of the
public sphere. While Jürgen Habermas was idealizing the public sphere, he
presented a single and holistic public sphere and did not allow different public
sphere (Yaylagül, 2010).
3 Social Engagement in the Digital World: Social Media
and Digital Activism
The emergence of the Internet started in the second half of the twentieth century. It is
communication and information tool that caused a transformation on societies which
became an international network over time. Technology is one of the important
infrastructure elements that provide social change. Also, internet provides instanta-
neity, speed, easiness, and relatively low cost. It is a widespread and effective
technology that is rapidly rising all over the world apart from continuing ownership
and usage inequalities in certain categories (Dedeoğlu, 2016).
In today’s world, information society is one of the common concepts that we met
frequently. It is a notion related to the societies that use mostly information and
communication technologies (ICT) as the component of economic, political, and
cultural life. Furthermore, social practices of them are formed by ICT. While these
technologies are developing, they had also shaped their ICT. Moreover, this trans-
formation started to be used in parts of the life such as banking, tourism, health,
media, and so on. with accelerating technologic developments in the last decade of
the twentieth century (Dedeoğlu, 2016).
Digital Activist Movements for Energy Resources: The Case of Greenpeace Turkey 147
Moreover, one of the most important and obvious effects of IT on the life
practices of individuals is the continuous increase of internet usage. Due to its
capacity, the Internet transforms and also transforms the societies at a dizzying
speed. People can access the information as they wanted at any time, every minute.
Additionally, they can be informed about the developments, have a good time to
spend and chat with the people they would like to be thanks to the internet. On the
other hand, shopping activities and banking transactions can also be realized by the
internet. The most important feature of the internet is to provide interactive com-
munication. Accordingly, it can ensure the elimination of the hierarchy and infor-
mation monopoly. Furthermore, it is submitted that Internet allows to form new and
interesting communities, to bring together individuals with common interests, to
strengthen social networks by eliminating time and space (Gülnar & Balcı,2011).
We constantly encounter the concept of the new media in our lives with the
development of new communication technologies. Besides, it can be as those
systems that can include mass audiences as individual users, and where individuals
can access content or applications at different times, and they can be in interaction
(Geray, 2002). Due to digitization, data is easily processed, texts are prepared for
word processing, and sounds and images become higher quality. Also, the uniform
language makes the content more precise (Dijk, 2018). The traditional media in the
pre-internet era are the communication environments of magazines, newspapers,
radio, and television. With regard of this, the traditional media is one-sided, because
it cannot provide active participation to the reader, listener, and audience. So,
connections can only be made by telephone and live broadcasts. At this point,
criticism and opinions make late, and returns can provide with reader letters and
so on (Dedeoğlu, 2016). On the other hand, the concept of new media has come to
the forefront by replacing multimedia since the 1990s. Furthermore, this concept is
not multiple but composite. Additionally, it provides individualized connectivity and
is variable (Akar, 2010). Therefore, the new media plays an efficient and functional
role in the creation of social models in the construction of social structure and
production relations with these features (Törenli, 2005).
Social media is adopted as one of the most important possibilities of the digital
world. It offers users a very free and participatory environment and provides news
information data flow. Thus, social media give an opportunity to interact for users in
political, ideological, and cultural fields. Hence, users who can gain different
identities in social media that has a fast and fluid structure can easily share their
thoughts and feelings.
In past periods, individuals who come together in public spaces such as cafes,
parks, and so on that are common areas of sharing and discussing social issues and
problematics, creates virtual public spaces in today’s digital world. Developments in
the fields of technology, transport and communication change and transform the
social structures. Also, all kinds of organizations and processes involved in society
are also affected (Ayhan & Baloğlu, 2019). Therefore, new communication tech-
nologies have enabled individuals to meet and come together. It has a public content
when it is defined as communication spaces that produce sociality along with this
148 B. Gezmen
encounter. There is a situation associated with access to a common space (Timisi,
2003).
Activism is in our daily life since ancient times and is based on social movements.
The old social movements have been begun with labor movements of the nineteenth
century and have been used for expressing peace movements, feminist movements,
minority movements, and local autonomy movements, which have gained momen-
tum since the 1970s. The internet use of different types of activism is called “digital
activism.”A digital activism is to take action over the internet in a digital environ-
ment in the form of the advocacy of a goal, organizing around this goal in order to
achieve it, transmitting relevant messages to the masses, lobbying, boycotting, and
site blackout. Activists report company and government activities for their goal that
is brought together them. Moreover, they provide a wide range of information and
knowledge to a wide range of audiences through social media, blogs, podcasts,
images, video content, and sharing websites. They try to change the ideas of
individuals as opponents or advocators on social and political issues. Therewithal,
activists in the digital area have opportunities to express themselves better
(Livberber, 2019).
It is estimated that the new media directly contributes to the development of civil
rights through the relationship between new media and democracy. Nevertheless, the
state plays a very important role in the defense of civil rights of the media, which is
seen at the peak of the triangle of civil society democracy, in ensuring the formation
of public opinion, in illuminating public opinion and in realizing the flow of
information. In this regard, the concepts are gaining importance, such as alternative
media, online publishing and so on (Dağtaş,2007).
Alternative media can be explained as ways to organize, produce, and use outside
actual realized system and motivated by different goals and norms, without com-
mercial and public institutions. Alternative media as a stance against the industrial
structure of the capitalist system media can be explained as a means of symbolic
resistance tool for the media of social movements that offer a different field
(Andersson, 2017,p.92–93). The purpose of alternative media that interested in
news is simple: to ensure that these groups have access to the media according to
their musts. It means that the media should develop to promote and normalize this
type of access, such as employees, sexual minorities, unions, protest groups. Also,
managers and senior professionals can make their own news (Atton, 2006, p.11).
Lievrouw remodeled the definition of new media in general terms. According to
the definition, an alternative activist uses new communication technologies infor-
mation and communication works, practices and social arrangements of the new
media in order to change sovereign, ordinary, and accepted forms of the society,
culture, and policy making or to challenge them. Also, it is highlighted that the new
media is used to change things (Lievrouw, 2016). Moreover, the new media, which
has an opportunity of interaction on digital platforms, allows content production. In
this point, activists preferred the new media platforms that is aimed social and politic
change. Besides, many examples of digital activism influence social policies by
raising awareness and consciousness (Göksu & DurmuşBektaş,2019). Digital
activism changes and transforms as technology advances. The activists’goals and
Digital Activist Movements for Energy Resources: The Case of Greenpeace Turkey 149
method preferences determine the types of activism. According to this, types of
activism can be classified as participatory/awareness (advocacy) activism,
clicktivism/slacktivism, hacktivism, citizen journalism and resource creation. The
be advocator/participatory is to organize social media signature campaigns, media
campaigns and so on in order to hear the voice of ideas, protect rights and raise
awareness (Turhan, 2017). Furthermore, slacktivism is thought to be beneficial in the
sense of mobilizing people by opening hashtags, sharing the same profile photo,
sharing black ribbons. However, there are also people who think that the feeling of
taking action begins to vanish at this point (Turhan, 2017). In the scope of the new
communication technologies, each person can report any event, photograph it, create
a video, make their own news as a citizen journalist, and create awareness. On the
other hand, hacktivists start some activist movements by capturing the information
of institutions and organizations in the digital environment to acquire the facts on
behalf of the citizen to give perspective to the unseen faces of events.
The new social movements that emerged in the cultural sphere and are based on
identity and are unlike the old social movements different. With the development of
the new social movements, digital activists have come out in different fields such as
women’s movements, peace movements, environmental movements and so on.
The first comprehensive environmentalist action in France was Jean Dorst’s
successful campaign with slogans like before nature dies for the rescue of the
Vanoise National Park in 1965 and the 1969 French Federation of Nature Conser-
vation associations. These associations have entered into struggles to ensure that
nature does not disappear. While some groups are looking for ways to protect nature
but all nature, some groups are more interested in protecting their environment. The
highways, industrial zones have become the target of associations formed by people
who will live on these areas and who will be to forced migration from this area
because of river pollution (Sımonnet, 1993). In today’s societies, the continuous
consumption-oriented lifestyle, markets’production method in the form of dispos-
able productions and consumption methods cause not only alienation of people
against to the nature, but also, they are reason of running out natural resources due
to excessively use. Also, they lead to widespread pollution of accumulated waste.
These routine works like everyday activities are actually decisive in environmental
degradation (Özdemir, 2019). As environmental problems increased and the point of
how to solve these problems became important. Therefore, the environmental studies
conducted after 1900 focused on the solution. A notable aspect of these years is that
public opinion on environmental quality has reached the highest level in all time. An
increasingly visible majority views the environmental issues as serious threats to
human well-being. With regard of this, Hardoy et al. focused on the concept of a
sustainable city profile for minimizing environmental damage and solutions to some
existing environmental problems. It is important to be able to provide healthy, safe
environments without anticipating unsustainable demands on cities, natural
resources, ecosystems, and global cycles (Cansaran, 2019). Particularly, the changes
and transformations after 1980, economic development motives triggered by neo-
liberal policies caused an atmosphere of anti-environmental industrial development
in the business world, public groups, and the state bureaucracy. Besides, the
150 B. Gezmen
concepts such as green buildings and environmentally friendly mining have started
to be heard frequently. As environmental history highlighted by Hughes “the task of
environmental history is the study of human relationships through time with the
natural communities of which they are part, in order to explain the processes of
change that affect that relationship.”Hence, it is discoursed the dependence of
societies on nature and the approach that some changes occur in nature as well as
in individual and social life because of it (Hughes, 2019). On the other hand,
environmental movements bear some similarities to other forms of movement such
as women’s movements and peace movements at many points. However, environ-
mentalist movements settle eco-centrism instead of human centrism by proposing a
new model of society. Thus, environmentalist movements oppose the understanding
of growth and development because it causes environmental problems to propose an
eco-centrist and self-sufficient model of society that limits growth (Balkaya, 2014).
Greenpeace and Friends of the Earth are among the most important NGOs’names
in environmental movements today. The work of Greenpeace and Friends of the
Earth, which have signed global works in raising awareness decisively. These
organizations are active in the areas of nuclear power plant opposition, marine
ocean pollution prevention, climate change, ending dependency on fossil fuels,
environmental justice, and nature (Balkaya, 2014).
4 Energy Efficiency and Sustainable Energy
Energy occurs in different ways as the ability of an object or system to perform
works. It is in our life in the form of thermal energy, electrical energy, mechanical
energy, chemical and nuclear energy and thermal energy, light energy. Further,
reaching energy resources are the fundamental need in our era. There are two energy
groups which are renewable and non-renewable (Özdemir, 2020).
Renewable energy is obtained from the existing energy flow in continuous natural
processes. Traditional biomass by burning wood, plants, and other substances in
traditional ways and large hydrological energy are traditional renewable energy;
wind, solar, wave, ocean, geothermal energy are new renewable energy sources
(Zhong et al., 2020; Yüksel et al., 2020; Li et al., 2020; Xie et al., 2021).
Non-renewable energy sources are also called fossil energy sources in the form of
oil, natural gas, coal. According to some approaches, nuclear power plants are
included in non-renewable energy resources and they are included in renewable
sources (Sevim, 2019).
Both in the world and in Turkey, raising energy production from domestic and
renewable energy sources and increased energy efficiency is a mandatory policy in
reliable time of the energy within the scope of supplying uninterrupted and envi-
ronmental compliance energy (Basa & Pamir, 2014). Energy problem is one of the
main annoyances of the industry. Also, the exponential increase in energy consump-
tion and the continuous depletion of fossil beds in nature show us that the sad end is
approaching. In a world where everything is limited, unlimited material development
Digital Activist Movements for Energy Resources: The Case of Greenpeace Turkey 151
is impossible. Except running out of resources, environmentalists debate the integ-
rity of the energy system for many reasons. Unfortunately, the system does not
depend upon energy that can renew itself. Otherwise, an unstable economy is
formed, and it is dependent on resources that will run out in the long term. On the
other hand, the crisis of the energy system is the same as the level of energy
dependence of users. The excessively used electricity also reflects consumerism in
our daily lives (Sımonnet, 1993). As energy is one of the most important natural
resources, it is intertwined with economic growth and environmental problems
(Yapraklı,2013).
5 Non-governmental Organizations (NGOs)
and Digital Media
Non-governmental organizations (NGOs) that unite around a common goal and act
in accordance with the legal dimensions defined for them. They act not for them-
selves but primarily in accordance with the interests of societies. NGOs are organi-
zations that perform all these activities without being part of states. Although they
are affiliated to the state, NGOs do not act as part of the state. Trade unions, political
parties, cooperatives, associations, foundations are among the structures that operate
as NGOs. Moreover, NGOs, which provide a bridge between society and the state
and strengthen the structure of civil society, work on a voluntary basis to enlighten
and inform the public (Akay, 2019). Additionally, NGOs have become a concept
that is not separated from the concept of democracy. So, it is considered with
democracy concept today. Non-governmental organizations which can be defined
as non-profit and non-state institutions that contribute to the development of democ-
racy working for the benefit of society. Hence, they are a cross-section of society that
is outside the state in the modern sense. Independent NGOs act in accordance with
legal, social, cultural, political, and environmental targets. They organize campaigns
provided by lobbying, persuasion and actions, donation, or membership fee. Also,
they make activities to mobilize and create awareness. In this context, the media is an
indispensable tool for these organizations. Due to the collectivist nature of this
platform, both local governments and non-governmental organizations have started
to use this digitized structure of social movements with technologic developments
and accelerating internet and social media. Forums, blogs, microblogs content
groups allow individuals to share ideas very quickly and act integrated around a
common goal. A communication environment is created that allows them to coop-
erate in an organized way (Akay, 2019).
In the last 30–40 years, many environmental problems, especially ozone deple-
tion, global warming, and climate change, have become issues that the global
political field and public opinion with sensitivity and concern have focused on
(Ataman & Erkmen, 2012). The examples of Tweet content as Greenpeace Turkey
Twitter account energy-themed shares were considered based on the Twitter account
152 B. Gezmen
popularity ranking conducted on 10.08.2021. All content shared with the word
“energy”which was searched as a keyword in content shared from Twitter account,
is the subject of this research. In this study, it is examined which topics Greenpeace
Turkey’s energy-related posts focus on. Greenpeace is one of the most effective
organizations in environmental movements. In 1971, a group of ecologists, journal-
ists, and hippies united around the same idea as the founders of Greenpeace raised a
Greenpeace flag on Phyllis Cormack that is a fishing boat, and they sailed to
Amchitka Island. It is accepted the starting point of a great movement and a green
and peaceful history. The founders ‘goal was to stop nuclear tests conducted by the
US Navy. These beginnings of Greenpeace have subsequently evolved into a
movement in the international arena. Their main goal is to protect the environment
and to create change. Greenpeace Turkey is Turkish field of the group. They always
aim at peaceful ways and try to overcome difficulties. Moreover, Greenpeace Turkey
consists of people who promise to fulfill the core values of Greenpeace and come
together to defend the right to live in a healthy environment.
In this study, it is investigated Greenpeace Turkey’s tweets on shared of energy
under the popular category on 10.08.2021.
In the posts on May 26, 2019, May 27, 2019, and May 30, 2019, and June
7, 2019, under the popular subtitle, it was emphasized that the energy consumed by a
stadium with 55 thousand people in a match is equal to the annual consumption of
164 households and 55 thousand people stadium causes 3600 tons of carbon
emissions. Hundreds of people who came to Istanbul and visited the Rainbow
Warrior ship started a campaign to pioneer football clubs for a clean future with
the slogans “Shoulder to shoulder for the sun,”“Look alive,”“Let make the stadiums
light up with solar energy,”and “Better energy brings goals.”
On January 9, 2020, and January 18, 2010, a podcast was published in which
energy expert Ceren Ayas assessed Australian fires in the second post. On June
15, 2020, the third post was about the share of fossil fuels in energy consumption.
According to the REN21 report, the share of fossil fuels in ultimate energy con-
sumption has declined from 80.3% in 2009 to only 80.2% in 2019.
In the post on November 22, 2019, the news was given that the oldest 15 coal
thermal power plants of Turkey will pollute the air more than 2.5 years. It was stated
that more than 100,000 people who say “Leave coal”will continue to fight for
energy with the call of “Join us”on the same date. In the fourth post on fifth of May
2020, it drew attention to the necessity of giving up fossil fuels in electricity
generation, giving weight to bicycle use in cities and switching to renewable energy
sources in order to mitigate the climate crisis with the “The future is on the bike.”In
the fifth post on February 2, 2020, it is stated that the need to close coal-fired thermal
power plants in Turkey. Additionally, it was included that wind and solar energy
production should be increased in Europe. Furthermore, the sixth post on October
8, 2020, is for coal-based energy production. It was stated that Kemerköy Region is
in the fourth and Afşin and Elbistan are in the fifth place in air pollution caused by
thermal power plants worldwide. Next, the seventh post on December 30, 2020, was
aimed at the necessity to increase the potential of renewable energy. In the eighth
post on April 30, 2020, it was again on the subject of struggle for renewable energy.
Digital Activist Movements for Energy Resources: The Case of Greenpeace Turkey 153
A call was made to support the campaign by using expressions such as “it is time to
carry our struggle with special cloth bags on our shoulder for the 25th Anniversary.”
“Click, choose your campaign, get one of the limited-edition bags;”in the same post,
it was emphasized that the banner of “Coal Kill Our Lives”hung by a hot air balloon
flying over the area where 6000 trees were cut down for the coal-fired thermal power
plant in Soma, Manisa in January 2016. Therewithal, it was denoted that the struggle
in Soma resulted in victory. In the nineth post on May 1, 2019, it was shared the
content supported by the video contents which included villagers who autographed
and tried to protect their lands on the verge of extinction due to expanding mines.
Accordingly, “Call and Sign”shares are made to The Ministry of Energy and Natural
Resources.
In tenth post on March 10, 2019, it was supported the share about the video
content for the signature campaign on the same issue related to the mother and child
crying out because her child is not healed in Dilovası.
In eleventh post on March 6, 2019, it was remarked that people thought of
pollution, disease, and death in the signature campaign when they heard about
thermal power plant. In twelfth shared video of the repeated signature campaign
on February 20, 2019, it was set the agenda that Çanakkale Çan Yaya Village is
referred to as the area left to die because of two coal-fired thermal power plants.
The thirteenth post on April 2, 2020, was about the fight against coal-fired
thermal power plants. In this regard, the statements of Onur Akgül, who is in charge
of Climate and Energy Project are included.
2020 Climate Transparency Report in fourteenth post on18th of November 2020
is investigated. It is advocated the requirement to stop support for fossil fuels. In the
fifteenth post on June 1, 2020, it was launched by Greek Minister of Environment
and Energy Kostis Hacidakis the “Greece”where are no disposable plastic products
throughout the country.
In the sixteenth post on February 15 it was included that the Spanish Minister of
Energy, Teresa Ribera announced that seven nuclear power plants across the country
will be shut down by the decision of the government until 2035.
In the post on June 11, 2020, the requirement to unplug the computers after they
are turned off and computers consume much lower energy in sleep mode is
supported by the slogan “Put your computer to sleep when you did not work.”
On March 22, 2019, it is stated that the use of coal for energy generation in
Finland will be completely banned from May 1, 2029.
In the post on seventh of November 2019, it is involved that the residents of
Zonguldak, Çanakkale and Afşin Elbistan applied to the Ministry of Energy and
Natural Resources for the decommissioning of 15 coal-fired thermal power plants
operating without a chimney filter. Also, hashtags shared in the content, such as “The
Clean Air is The Right.”
On July 7, 2019, Ajax’s stadium Johan Cruff Arena generates electricity with
4200 solar panels on its roof of. Moreover, it is requested to support the lighting of
the stadiums with solar energy to the statements that this energy is stored in the
batteries of 148 electric vehicles.
154 B. Gezmen
In the posts on February 12, 2019, it was discussed that click and share your
opinion about whether the permanent daylight-saving time application, which
started in October 2016, can save energy or not.
On June 29, 2019, the slogans of “Take action, The stadiums light up with solar
energy”were supported.
On February 19, 2019, the slogan of “Leave Coal”is supported in the video that is
about the Hasibe Koç’s life struggle in Ceyhan, Adana.
There is a post is for the permanent daylight-saving time application on February
8, 2019. “Click and join our one-question survey.”
In the post for May 1, 2020, Labor Day, it is stated that there are about
40 thousand people working in coal mines in Turkey, and it is pointed out that
coal workers do not have to work under risk in dirty and old energy production.
On January 2, 2020, the news of the decommissioning of five active coal power
plants on the grounds that they did not install a chimney filter in the given time is
discussed with the rhetoric of victory. It is expressed that this is the success of
hundreds of thousands of people who say “Leave coal.”Furthermore, it is declared
that the struggle will also continue in 2020.
In the post on September 21, 2020, it is announced that Turkey is accelerating
studies of nuclear energy while the world is phasing out nuclear energy reactors.
Also, the second power plant planned to be built in Sinop after Akkuyu Nuclear
Power Plant that is the first power plant in Mersin, Turkey and it was approved.
Therefore, the statements of “Our future is in danger”draw attention.
6 Conclusion: Discussion and Suggestions
New media which provides social interaction between physically distant individuals
from each other in the digital world, allows individuals to ensure the collectivity
required by public interaction. Due to its influence on the transformation of time and
place, new communication technologies and the internet emerged as a virtual place
that is a social participation place. In the digital world, which causes a more
participatory life, the internet creates a new public sphere arena.
It is ensured that everyone is open to participation, the features of interaction, the
ability to express their thoughts freely, and all topics in conflict put forward by
discussing. In this context, some approaches positioned the mass communication
tools as an important for the democracy in the digital world. However, the
non-egalitarian structure as a requirement of the capitalist system and political
economy approaches should not be ignored in here.
In this virtual sphere where everyone can gather and act around a certain purpose,
NGOs that are non-profit organizations that produce social responsibility projects
and aim to support social issues, organize activities to raise awareness and mobilize
for the problems. Hence, traditional old social movements gain momentum with
digital activism as the realized form in the digital arena.
Digital Activist Movements for Energy Resources: The Case of Greenpeace Turkey 155
Nowadays, industrialization, rapid population growth, chemicals polluting the
environment have become the magnitude that can be harmful to living. Furthermore,
the ecological balance has deteriorated, climate crises have begun to increase, and
energy resources have been depleted as a result of excess consumption. In this
context, it is tried to prevent the environment-oriented destruction within the scope
of environmental movements by focusing on the issues such as energy saving,
protecting energy resources, and creating energy awareness. Besides, Greenpeace
Turkey realized quite important activities in the framework of environmental move-
ments for the protection of energy resources which is the main subject of this study.
In the context of the research, Greenpeace Turkey’s energy content on the axis of
digital activist movements was evaluated. With regard of these, the themes on
energy within the scope of the examined contents are mainly energy saving, the
share of fossil fuels in energy consumption, coal-fired power plants, air pollution,
and the climate crisis. Moreover, digital activist movements are supported by
signature campaigns, announcements, sharing of hashtag posts, and click-through
campaigns. With the NGOs have started to use the digital world effectively and
successfully, environmental movements in social media have accelerated. Success-
ful campaigns which are carried out by people who unite within the framework of the
same view by raising awareness on the common problems are also shared in the
tweets. In this context, creating energy consciousness, which is the most important
issue of our time, should be tried to be thought from a young age through educational
programs. Additionally, it should continuously be kept on the agenda with activist
movements of the NGOs that are particularly active in social media. Also, the
competency of energy literacy should be learned through solution-oriented, influen-
tial movements and scientific studies.
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158 B. Gezmen
The Stability of Financial Institutions
and Counterparties
Zaffar Ahmed Shaikh and Nikita Makarichev
1 Introduction
The extension of insurance coverage to legal entities will be a stimulating factor for
such lenders to accumulate financial resources in the banking sector of the Russian
Federation. Expanding the scope of insurance will require a review of the current
model of the energy risk insurance system, which currently includes only those
banks whose license provides for the right to insure energy risks. On the other hand,
extending insurance coverage to legal entities, while maintaining the current condi-
tions for mandatory participation in the energy risk insurance system may contribute
to the outflow of funds of legal entities from credit institutions that are not partic-
ipants in the energy risk insurance system. On the other hand, it may be possible to
increase the number of employees who are not participants in the energy risk
insurance system, which may lead to the formation of a risky business model for
such credit institutions.
This creates a moral hazard that depends on the effectiveness of market discipline.
It is assumed that an effective market discipline that reduces the degree of moral
hazard is a situation in which the project carefully monitors the financial condition of
the bank, and, if there is a risk of loss of funds, begins to demand an increase in the
deposit rate, or withdraws money from this bank altogether.
Z. A. Shaikh (*)
Faculty of Computing Sciences & Information Technology, Benazir Bhutto Shaheed
University, Karachi, Pakistan
e-mail: zashaikh@bbsul.edu.pk
N. Makarichev
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_14
159
Thus, there is a change in the structure of the bank’sfinancial assets, which
reduces its stability. The main thing in this mechanism is the close attention of the
project to the bank. Now, since the project already knows that its money is protected,
this mechanism does not work, which leads to certain problems and imposes
additional burden and responsibility on the control bodies.
It is worth noting that what was in operation 15–20 years ago is no longer suitable
for functioning at the present time. That is why it is necessary to make drastic
changes in the processes of formation and functioning of the system, which must
necessarily have legislative consolidation.
So, there is no need to “reinvent the wheel,”since there are many types and
interpretations of energy risk insurance systems that are successfully used by other
countries, it is only necessary to shift this experience to Russian conditions. It is
these urgent changes that will be discussed in the next chapter of this study.
2 Literature Review
According to the data of the Energy Risk Insurance Agency, in 2019, the number of
participants in energy risk insurance amounted to 723 banks. By 2020, this number
has significantly decreased—to 696 (a decrease of 27 participants in the country
compared to the previous period), including existing banks licensed to work with
individuals in terms of attracting and placing deposits—372; existing credit institu-
tions that previously accepted energy risks, but currently lost the right to attract funds
from individuals 6; banks that have a license to work with individuals in terms of
attracting and placing deposits—, in the process of liquidation—318 (Bhuiyan et al.,
2021; Dong et al., 2021, Mikhaylov, 2021b; Liu et al., 2021,2022; Saqib et al.,
2021; Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka et al., 2018;
Sunchalin et al., 2019; Uandykova et al., 2020; Udalov, 2021; Dinçer et al.,
2020a,b; Yuksel et al., 2021a,b,c; Dorofeev, 2020; Qiu et al., 2020; Mukhametov
et al., 2021; Candila et al., 2021; Zhou et al., 2021).
Banks that previously accepted energy risks but lost the right to attract funds from
individuals to deposit accounts include Asia-Invest Bank, State Specialized Russian
Export-Import Bank, PROMSVYAZINVEST, Synergy, JSC settlement non-bank
credit organization “KHOLMSK,”JSC settlement non-bank credit organization
“Narat.”
The Agency is working diligently to improve the efficiency of finding and
returning bank assets that were withdrawn abroad by unscrupulous owners. The
number of insured events during the period from 2016 to 2020 tends to fall. This was
due to the revocation of licenses from many bankrupt banks, a reduction in the
contribution rate during COVID-19 pandemic, outflow of foreign currency deposits
from Russian banks (Mikhaylov, 2018c; Mikhaylov et al., 2019; Melnichuk et al.,
2020; Nie et al., 2020; Moiseev et al., 2021; Grilli et al., 2021).
Commercial banks regularly pay insurance premiums in the amount of 0.1% of all
deposits to energy agencies. Thus, customers do not personally make an additional
160 Z. A. Shaikh and N. Makarichev
payment for deposit insurance, and this obligation is performed by the bank at the
basic, additional or increased additional rate based on the current legislation
(Dayong et al., 2020; Mikhaylov et al., 2018; Nyangarika et al., 2018,2019a,b;
Danish et al., 2020,2021; Fang et al., 2021; Li et al., 2020; Du et al., 2020; Lisin,
2020; An et al., 2021; Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020; Yuan
et al., 2021; Ivanyuk et al., 2020; Ivanyuk, 2018; Ivanyuk & Soloviev, 2019; Uyeh
et al., 2021; Wang et al., 2019; Dinçer et al., 2019).
2020 as a whole was a difficult year for the banking system. Including in the
segment of term deposits of citizens. A number of factors provoked citizens to
withdraw their savings from credit institutions. Especially during self-isolation. In
particular, in March–May 2020. Although, the dynamics even during this period
were different, if we evaluate the results of each month relative to the previous one
(An et al., 2019a,b,2020a,b,c; Mikhaylov, 2019,2021a; Mikhaylov & Tarakanov,
2020; Moiseev et al., 2020; Gura et al., 2020; Dooyum et al., 2020; Mikhaylov et al.,
2020a,b,c,2021a; Varyash et al., 2020; Zhao et al., 2021; An & Mikhaylov, 2020;
Alwaelya et al., 2021; Yumashev & Mikhaylov, 2020; Yumashev et al., 2020;
Mikhaylov et al., 2021b; Mutalimov et al., 2021; Morkovkin et al., 2020a,b;An
& Mikhaylov, 2021).
At present, the banking system of our country is relatively stable in its develop-
ment, primarily due to the functioning of the energy risk insurance system. During
periods of multiple Since the practical implementation of the system, we have
managed to avoid the occurrence of numerous cases of mass withdrawal of funds
from deposit accounts by projects, as was the case in the 90s of the last century.
Thus, we can conclude that the energy risk insurance system is quite successfully
coping with the role of ensuring the stability of the country’s banking system
(Denisova et al., 2019; Nyangarika et al., 2019a,b; Huang et al., 2021a,b;
Mikhaylov, 2018a,b,2022; Meynkhard, 2019,2020; Mikhaylov et al., 2019;
Conteh et al., 2021).
The situation in the economy, falling incomes due to the coronavirus and low
interest rates will continue to negatively affect the dynamics of energy risks in the
medium term. At the same time, in the second half of 2021, the situation may start to
change for the better, but the real growth rate of energy risks by the end of 2021 is
likely to be at the level or slightly worse than the result of 2020.
Thus, in 2019, the energy risk insurance system had a positive impact on the
market of bank energy risks, contributed to maintaining the positive trends in the
field of bank savings of the population that have developed in recent years. In 2021,
there is a trend and prospects for expanding the energy risk insurance system, which
will increase the inflow of energy risks to banks at the end of the scope of energy risk
insurance and the activities of the energy agency allow us to determine the procedure
for compensation in the event of an insurance event. a case for all subjects of the
process. Therefore, the energy risk insurance system needs to be further developed,
as it is an effective tool that helps protect the interests of projects and ensure the
relatively stable operation of banks in conditions of economic instability in the
global economy.
The Stability of Financial Institutions and Counterparties 161
3 Methodology
As of June 30, 2020, 53 banks were accredited by the Agency to participate in
competitions to select agent banks for payment of refunds. Structural divisions of
these banks are located in all regions of the Russian Federation, which allows the
vast majority of projects to receive compensation at their place of residence. The
number of accredited agent banks includes the largest banks in terms of attracted
deposits of individuals: Sberbank PJSC, VTB Bank (PJSC), Rosselkhozbank JSC,
GPB Bank (JSC) and Otkritie FC Bank PJSC. In the first half of 2020, the Agency
will test a new digital a service that allows accepting payment applications in
electronic form and paying insurance compensation through remote service channels
of the agent bank. It was used by more than 1.3 thousand projects of NVK Bank JSC,
which were paid about 520 million rubles through Sberbank Online (an online
service of Sberbank PJSC). In addition, more than 1.7 thousand projects in the
reporting period received information about the amount of compensation due and
paid through the electronic service.
In the reporting period, the results of inspections of banks conducted in 2019 with
the participation of the Agency were also summed up. Generalized data on the
results of inspections were sent to the Bank of Russia. In general, the results of
inspections of banks in 2019 allow us to conclude that banks participating in energy
risk insurance comply with the requirements of the Law on Energy Risk Insurance in
terms of fulfilling their duties. It should also be noted that deposit insurance takes
place automatically when it is opened in a bank participating in the energy risk
insurance system (energy risk insurance). The list of participating banks and banks
excluded from the insurance system is published on the official website of the
Energy Agency. First of all, energy risk insurance includes such large financial
and credit organizations as Sberbank of Russia, VTB Bank, ALFA-BANK, and
Gazprombank. The amount of insurance liability of the energy agency.
At the end of 2020, the deposit market in Russia showed rather weak dynamics.
According to the Bank of Russia, the increase in household energy risks in real terms
over the past year was only +4.2%, which is more than 2 times less than in 2019
(+9.7%). For comparison, the last time the growth rate was lower was in 2014
(2.5%).
It is worth noting that in 2020, due to the depreciation of the ruble, the dynamics
of deposits in nominal terms was quite good. The volume of energy risks increased
by 8% (2.4 trillion rubles), which is not much different from the dynamics of recent
years. Thus, almost half of the increase in nominal terms is a currency revaluation
(Dinçer et al., 2020a,b; Girma et al., 2007; Haghi et al., 2018; He et al., 2019;
Hoegen et al., 2018; Hong et al., 2015; Koengkan et al., 2020; Lam & Law,
2016,2018.
The situation in the economy, falling incomes due to the coronavirus and low
interest rates will continue to negatively affect the dynamics of energy risks in the
medium term. At the same time, in the second half of 2021, the situation may start to
162 Z. A. Shaikh and N. Makarichev
change for the better, but the real growth rate of energy risks by the end of 2021 is
likely to be at the level or slightly worse than the result of 2020.
4 Analysis Results
Leading Russian experts and scientists identify the following main problems related
to the formation and functioning of the energy risk insurance system:
1. A fixed amount of state guarantees established at the state level (since the form of
the Energy Risk Insurance Agency is state-owned), which is most often unfair in
calculation and insufficient to meet the interests of projects.
2. The system of contributions to the Mandatory Energy Risk Insurance Fund is
outdated. All banks deduct contributions at a single basic percentage set by the
Central Bank of the Russian Federation using the flat scale method, without
taking into account the level of risks of each of them.
3. The system of energy risk insurance in our country, unlike the world experience
of using this system, covers a limited range of objects of insurance protection.
4. Insufficient public awareness of the operation of the energy risk insurance system
and hidden information about the actual reliability of many banks.
5. Fraudulent actions in the field of energy risk insurance system. For the purpose of
intentionally obtaining an illegal insurance refund.
6. A very significant problem today is the policy of the Central Bank of the Russian
Federation aimed at “improving”the banking sector.
The Fund’s insufficiency necessitates the use of borrowed funds by the Energy
Risk Insurance Agency, which is always the beginning of the development of an
even deeper and more difficult problem to solve. This is evidenced by the current
statistics and forecast data determined for the future, which were discussed in more
detail in the previous paragraph.
Taking into account international experience, it is advisable to expand the range
of persons (entities) covered by the protection provided by the energy risk insurance
system by including legal entities ‘accounts and deposits in the system. The exten-
sion of insurance coverage to legal entities will be a stimulating factor for such
lenders to accumulate financial resources in the banking sector of the Russian
Federation.
We believe that funds of legal entities whose activities are related to the provision
of financial services and are based, in particular, on a professional assessment of the
stability of financial institutions and counterparties should be excluded from the
scope of energy risk insurance.
The Stability of Financial Institutions and Counterparties 163
5 Conclusions and Discussion
In this regard, it is proposed not to extend insurance coverage to bank accounts
(deposits) of credit institutions; professional participants in the securities market;
trade organizers; clearing organizations; microfinance organizations; consumer
credit cooperatives; insurance organizations; insurance brokers; mutual insurance
companies; non-state pension funds; management companies of investment funds
(mutual investment funds) and non-state pension funds; specialized depositories of
investment funds (mutual investment funds). private pension funds; pawnshops;
leasing companies.
It is also not advisable to insure funds of the federal budget, funds of budgets of
constituent entities of the Russian Federation and local budgets, funds of state and
other extra-budgetary funds placed in credit institutions, with the exception of funds
of state and municipal social institutions (for example, educational and medical
institutions). It is debatable to include “funds in settlements”(transfers without
opening an account, letters of credit, etc.) in the perimeter of the energy risk
insurance system, taking into account the accumulation of such funds in bank
accounts. Funds for a relatively short period of time. The inclusion of bank accounts
(energy risks) of individuals in precious metals in the insurance coverage period
seems impractical due to the predominantly investment nature of such accounts and,
as a consequence, their use by investors who are able to assess certain risks
associated with the dependence of profitability on such accounts (deposits) on
market quotations for metal placed on accounts (deposits).
In addition, it does not seem appropriate to include individual legal entities in the
insurance perimeter of accounts (deposits), for which the limit of insurance com-
pensation is generally insignificant. One of the key tasks assigned to energy risk
insurance is to protect the funds placed by citizens themselves in banks. In many
countries, there is a system for protecting the financial condition and interests of the
population, which is perhaps the most important social task. Energy risk insurance is
mandatory in any member State of the European Union. As an example, energy risk
insurance operates on the territory of Brazil, the USA, Japan, as well as on the
territory of the CIS countries-Armenia, Ukraine, Kazakhstan, and others. In general,
it is possible to classify existing energy risk insurances in the world according to
numerous criteria. The system for insuring monetary energy risks of citizens became
a necessary step in connection with the default of 1998. Just in 1998, the state,
represented by the government, came to understand that the state really needs and
needs such a mechanism, with the help of which it is possible to minimize any
negative consequences among banking institutions. Systems with financing are
based on the fact that specialized funds are created for payments of deductions for
insurance. Funds are formed using regular contributions made by participating
banks. Such a system has a fruitful effect on increasing trust, and in the event of
an insured event, such a system also accelerates the transfer of funds as
compensation.
164 Z. A. Shaikh and N. Makarichev
As for the system without financing, here the funds needed for compensation can
only be found if necessary, such as the bankruptcy of a banking institution.
This is a less preferable system, because in the event of a crisis, many banks come
under attack, and it is very difficult to collect the necessary amount. Also,
fundraising in this system is a long process, which causes panic among numerous
projects.
The goals of energy risk insurance based on the rapid elimination of the crisis and
its consequences, as well as the formation of a stable system, cannot be achieved.
As of June 30, 2020, the energy risk insurance system included 704 credit
organizations, including 353 existing credit organizations that have the right to
open new accounts and accept funds of individuals for energy risks; 6 existing credit
organizations that have lost the right to open new accounts and accept funds of
individuals for energy risks; 345 credit organizations that are in the process of
bankruptcy proceedings (liquidation).
The number of accredited agent banks includes the largest banks in terms of
attracted deposits of individuals: Sberbank PJSC, VTB Bank (PJSC),
Rosselkhozbank JSC, GPB Bank (JSC), and Otkritie FC Bank PJSC.
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170 Z. A. Shaikh and N. Makarichev
Roles of FDI, Energy and Carbon Emission
in Convergence or Divergence of Income
in BRICS Nations in Neoclassical Growth
Framework
Ramesh Chandra Das and Aloka Nayak
1 Introduction
Free trade through liberalizations and globalizations of the economies following the
WTO accords has made tremendous growths of outputs and incomes of the nations
of the so-called developed nations in the post-World War II era. The countries from
the backward zones have started following the rising growth paths in the late 1980s
and in the early 1990s of the last century. There had been increasing income
disparities across the globe between the group of the developed economies of the
west and the less developed nations from the east in the 1980s due to the endogenous
growth factors such as knowledge capital generation, institutional factors, making
the technological progress endogenous in place of the exogenous growth structure in
the neoclassical model. The cross-country income differential among different
countries at the world level has been going down, although there are rising dispar-
ities and inequalities in the individual country levels as well as across some groups of
the economies (World Bank).
There is other side of the coin regarding the control and management of global
economic and political powers. The so-called developed economies have occupied
the authorities in different policy framing bodies at the global level, which according
to the so-called less developed economies, has raised conflicts with the less devel-
oped or emerging economies. The global funds from the monetary authorities such
as World Bank, IMF, etc. and the economic and financial ties among the developed
nations have compelled some of the less developed countries to not making out of
the poverty and unemployment traps. As solutions to this conflict and to fight against
R. C. Das (*)
Vidyasagar University, Midnapore, West Bengal, India
A. Nayak
Department of Economics, Vidyasagar University, Midnapore, West Bengal, India
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_15
171
the so-called western powers, there have been several economic groups that emerged
from the eastern economic zones. Such a sound organization is BRICS, the combi-
nation of Brazil, Russia, India, China, and South Africa, whose attempt was to make
a parallel consolidation for self defense against any external economic and political
shocks. The acronym “BRIC”was initially formulated in 2001 by economist Jim
O’Neill, of Goldman Sachs, in a report on growth prospects for the economies of
Brazil, Russia, India, and China—which together represented a significant share of
the world’s production and population. South Africa was invited to join BRIC in
December 2010, after which the group adopted the acronym BRICS. Together,
BRICS accounts for about 40% of the world’s population and about 30% of
the GDP.
But it is now a natural question on whether the members of the BRICS are now in
a position to raise their GDP levels as well as been capable of reducing the cross-
country income differences within the group members. The present study has
attempted to investigate the roles of the endogenous growth factors from economic
and environmental fronts to justify their convergence or divergence in incomes of
aggregate and per capita terms.
2 Review of Relevant Literature
The study reviews a list of selected works on the associations among the three
indicators, FDI, energy use and CO
2
emissions, with GDP of the BRICS members.
First studies on FDI-GDP, then Energy-GDP, and then CO
2
-GDP are addressed, and
at the end, the studies on income convergence among the BRICS nations are
addressed.
Omri et al. (2014) investigate the causality link between CO
2
emissions, FDI and
economic growth for 54 countries over the period 1990–2011 and found bidirec-
tional causality between FDI and economic growth that an increase in the stock of
FDI helps to promote economic growth and economic growth creates favorable
conditions to attract FDI inflows into the considered regions. Also indicates a
unidirectional positive relation from economic growth to CO
2
emissions that high
economic growth leads to damage to the environmental quality. Zakarya et al. (2015)
analyze how the emission of CO
2
in the BRICS countries affected by the variable
factors, namely the total energy consumption, FDI, economic growth, and by using
the co-integration tests and Granger causality test for the period 1990–2012, found
that for the long-run energy consumption, GDP and FDI inflow increases CO
2
emissions. Though FDI inflow has no direct effect on CO
2
emission, but has a direct
effect on GDP. Yaşar and Telatar (2018) analyze the relationship between FDI
inflow and CO
2
emissions for 139 countries for the period 1970–2015. By applying
Panel ARDL method and Granger causality test, they found that there is no signif-
icant short-run causality from FDI to CO
2
emissions for high income group.
Belke et al. (2010) try to examine the long-run relation between energy use and
real GDP by applying Panel co-integration test and the Granger causality test for
172 R. C. Das and A. Nayak
25 OECD countries over the period 1981–2007, and the results assume bidirectional
causal relationship between energy consumption and real GDP. Ouedraogo (2013)
analyses the long-run relationship between economic growth and energy consump-
tion for 15 African countries from 1980 to 2008 by using panel co-integration
technique and found long-run and short-run unidirectional causality, where causality
in short-run running from GDP to energy consumption and in long-run from energy
consumption to GDP. Esen and Bayrak (2017) examine the effects of energy
consumption on economic growth by means of a panel data analysis of 75 net
energy-importing countries for the period 1990 to 2012, results indicate that there
is a positive and statistically significant relationship between energy consumption
and economic growth over the long-term such that energy consumption contributes
more to economic growth as the import dependence of the country decreases.
Pao et al. (2011) examine the dynamic relationship between CO
2
emissions,
energy use and real output for 1990–2007 for Russia by applying co-integration
and causality test. The results from their Granger causality tests indicate the exis-
tence of strong bidirectional causality between these variables. The study also shows
that energy use has a positive significant effect on CO
2
emissions, and real output
has a negative impact on CO
2
emissions. Zhang and Zhou (2016) found that FDI
inflow leads to reduce CO
2
emission in China over the period1995–2010 in
29 regions and suggest that impact of FDI on CO
2
emission varies by region.
Azevedo et al. (2018) do a quantitative analysis between CO
2
emissions and GDP
growth for the BRICS countries over the period 1980–2011 and find out that
economic growth is the main driving force for the growth of CO
2
emissions in
Brazil and Russia, and no significant relation appears between economic growth and
CO
2
emissions for China, India, and South Africa.
For the income convergence analysis, Phiri (2018) worked on the per capita GDP
convergence in BRICS nations using the time series technique for the period
1971–2015, and the results confirm on Brazil and China being the only two
BRICS economies which present the most convincing evidence of per capita GDP
converging back to its natural equilibrium after an economic shock, at the same time
as Russia and South Africa provide less convincing evidence of convergence
dynamics in the time series, and India having the weakest convergence features.
The study by Basel and Rao (2018) examines the existence of absolute βconver-
gence and σconvergence of real per capita GDP among the BRICS nations for
1990–2015 using static panel data model, namely the Fixed Effects and Random
Effects for βconvergence and coefficient of variation (CV) for sigma convergence.
The results show the convergence among BRICS nations during the study period.
But the results are not acceptable when we take quarterly data or extended GDP data.
Applying the neoclassical growth and panel unit roots models on the quarterly data
from 2006Q1–2017Q2 to 2009Q1–2017Q2, the study of Das, Das et al. (2019)
reveals that there is no significant catching up of the countries in both the pre and
post-BRICS periods, but there is conditional convergence in the first period through
net FDI inflow and crude oil production. In another study, Das (2019) revisited the
same issue for the same group and revealed that the countries are not unconditionally
βconverging but converging in conditional terms with the variables such as foreign
Roles of FDI, Energy and Carbon Emission in Convergence or Divergence of... 173
direct investment (FDI) flow and working population. Furthermore, the study shows
that the countries are converging in σdefinition meaning the cross-country disper-
sion in per capita gross domestic product has fallen significantly. Hence, the
formation of BRICS has made the countries relatively better off compared to
pre-BRICS phase so far as the σdefinition of convergence is concerned.
3 Analysis Results
The review of the literature so far does not exhibit the roles of the three crucial
factors behind the remarkable growths of the member countries, FDI inflow, energy
use and CO
2
emission, upon GDP and its convergence. The present study works on
the issue of convergence of income in the group through these three crucial factors.
The present study uses the data of GDP (in current USD), Energy Use (in kg
equivalent), Inflow of FDI (Foreign Direct Investment) (in current USD), CO
2
emission (in kt) and population taken from the open data source of the World
Bank (www.worldbank.org). The data on population is used to derive the current
value of per capita GDP (PCGDP) (in USD). The period of study is 1991–2020, and
the member countries in the BRICS group are Brazil, Russia, India, China, and
South Africa.
The study first presents the descriptive statistics on the average values of all the
indicators across the pre-BRICS phase (1991–2009) and post-BRICS phase
(2010–2020) and makes mean difference test through the student’s t test.
For examining the cross-country convergence the study first reworks on the
existence of non-convergence in aggregate GDP as well as PCGDP in terms of the
absolute convergence hypothesis of the neoclassical growth model. Then it goes for
sigma convergence tests. Finally, the study goes for investigating the causes of
non-convergence of the incomes in the member countries by means of endogenous
growth factors such as FDI inflow, energy uses and CO
2
emission.
Lets us recall the essence of the neoclassical theory on cross-country conver-
gence. It is evident from the theory of absolute convergence that an economy with a
lower income at the starting point will have a faster rate of growth. This implies that
the income growth rate and initial income are inversely related. This is the notion of
Absolute βConvergence. The same logic is applied to the four key variables of the
present study.
We can now derive the expression for βin the form of cross-section regression.
Let us suppose that there are n numbers of regions or countries within a geographical
boundary with yit being the aggregate or PCGDP of the ith country. Consider the
following regression model.
log yit
ðÞ¼αþ1βðÞlog yi,t1
þuit ð1Þ
It can be rewritten as
174 R. C. Das and A. Nayak
log yit=yi,t1
¼αβlog yi,t1
þuit ð2Þ
where αand βare constants respectively for intercept and slope with β>0 and uit is
a regular disturbance term following properties of normal distribution. In this
equation, a positive sign of βmeans absolute convergence. That is, growth rate of
income [log (yit/yi,t-1)] is inversely related to the initial income (yi, t-1). It is also to
note that βis nothing but the slope of the income growth function. Here βalso plays
the role of speed of convergence.
Since the rate or speed of convergence depends on the gap between the initial
value and the steady state value of the variable so it can be determined by the
reorientation of the growth equation (Eq. 6) in the following form:
1=Nlog yit=yi,t1
¼α1eλt
=N
:log yi,t1
þeit ð3Þ
where λstands for the speed of convergence and Nstands for total period of time
under observation.
The hypothesis of Absolute βConvergence works well when the group of
economies is homogeneous in the key parameters like savings ratio, population
growth rate, rate of depreciation, etc., as considered in the Solow (1956) model.
The methodology of absolute βconvergence by means of cross-country regres-
sions has been criticized by Friedman (1992) and Quah (1993). They point out that
these regressions are liable to produce biased estimates of βconvergence, instead,
the simple trend in the coefficient of variation of income provides an unbiased
estimate of βconvergence, which is known as σconvergence. The following
regression equation can present the concept of σConvergence -
log CVðÞ¼aþbt þutð4Þ
where ais intercept constant, bis the slope constant or growth rate of CV over time
and uis the random disturbance term. If the sign of “b”is found to be negative and
statistically significant then we can say that the trend of CV is downward and that
there is convergence among the regions or countries and that σconvergence exist.
If there are heterogeneities among the member countries in different indicators
then the absolute convergence hypothesis does not work. The empirical data on the
growth experiences of the so-called developed countries in the 1980s show that the
countries did not converge to a common steady state, rather they diverged from this
steady state value and converged to their own steady states determined from their
individual growth determining factors (Barro & Sala-i-Martin, 1992). In other way
to say that the countries follow conditional convergence hypothesis. The conditional
convergence hypothesis for the BRICS group can be presented by the following
equation containing the three conditioning factors, FDI, energy use and CO
2
level.
Roles of FDI, Energy and Carbon Emission in Convergence or Divergence of... 175
log Yit=Yi,t‐1
ðÞ¼αβlog Yi,t‐1
ðÞþγlog FDIi,t‐1
ðÞþδlog Energyi,t‐1
þθlog CO2i,t‐1
þuit ð5Þ
If, βis still positive and significant along with the significant values of γ,δand θ
then we can say that there is conditional convergence in individual country’s
incomes.
4 Discussion
At first, the study presents the key descriptive statistics (mean and standard deviation
(SD)) of the four variables, PCGDP, per capita FDI inflow, per capita Energy use and
per capita CO
2
emission, in both the pre-BRICs and post-BRICS phases. After that,
it attempts to test the difference in the mean and SD from the pre- to post-BRICS
phases to see the changes of the variables from non-alliance to alliance phase. And
finally, the study attempts for the convergence analysis.
Table 1presents the descriptive statistics and the test results for the mean and SD
differences. It is observed that Russia becomes the leading country in average
PCGDP followed by Brazil in both the phases. India stays at the trough in the list.
Further, the rate of fluctuations in the PCGDP as measured by the SD shows that
Russia’s PCGDP is more fluctuating followed by Brazil in both the phases, whereas,
India’sfluctuation is the lowest in the two phases.
The results of mean difference in PCGDP show that all countries’PCGDP have
significantly increased in the post-BRICS phase. But, there has been significant
increase in the fluctuations of PCGDP in China only in the post-BRICS phase.
In terms of per capita FDI inflow, Brazil leads the group in both the phases
followed by Russia in both the periods. India remains in the trough. The mean
different test results show that, except South Africa, all the remaining four countries
in the group have experienced significant increase in per capita FDI inflow to the
countries in the post-BRICS period. But, for India and South Africa, the variances in
FDI flow have increased.
With respect to the per capita energy use, Russia and South Africa top the list
sequentially, and India still is at the bottom place. But, there are again significant
increases in the per capita energy uses in the post-BRICS phase for all. Also, the rate
of fluctuation has also increased for all in the second phase.
Finally, with respect to the per capita CO
2
emission, Russia and South Africa top
the list sequentially, and India still is at the bottom place. There are significant
increases in the per capita CO
2
emissions in the post-BRICS phase for all except
Russia. Also, the rate of fluctuation has also increased for all in the second phase
except Brazil and India.
Hence the series of the results on the descriptive statistical analysis show some
degrees of associations of PCGDP with all the remaining three income influencing
factors. Correlation analysis can provide better results to understand the degrees of
176 R. C. Das and A. Nayak
Table 1 Mean and Standard Deviation, and their statistical differences over the phases
Country Pre-BRICS Post-BRICS t-value F-test
Mean
1
SD
1
Mean
2
SD
2
Mean
12
SD
12
PCGDP
Brazil 4659.16 1877.54 10328.48 2040.70 7.72(0.00) 1.18(0.36)
China 1324.14 1026.66 7909.34 1928.52 10.50(0.00) 3.53(0.00)
India 552.77 256.23 1690.93 263.98 11.60(0.00) 1.06(0.43)
Russian Federation 4119.20 2871.77 12123.02 2463.83 8.06(0.00) 0.74(0.31)
South Africa 4006.39 1171.39 6427.93 921.93 6.26(0.00) 0.62(0.22)
Per Capita FDI Inflows
Brazil 106.13 76.42 385.96 65.53 10.59(0.00) 0.74(0.32)
China 50.77 35.81 167.25 33.69 8.92(0.00) 0.89(0.44)
India 7.70 10.42 29.17 6.10 6.22(0.00) 0.34(0.04)
Russian Federation 99.95 149.53 241.00 132.62 2.68(0.01) 0.79(0.36)
South Africa 56.76 64.87 79.25 35.88 1.06(0.30) 0.31(0.03)
Per Capita Energy Uses
Brazil 1086.15 104.38 1461.14 54.89 11.01 (0.00) 0.28 (0.02)
China 1086.92 343.45 2187.24 90.77 10.35 (0.00) 0.07 (0.00)
India 421.49 50.31 618.35 27.84 11.91 (0.00) 0.31 (0.03)
Russian Federation 4552.31 466.83 4975.28 91.56 2.95 (0.01) 0.04 (0.00)
South Africa 2551.51 171.91 2691.08 41.94 2.63 (0.01) 0.06 (0.00)
Per Capita CO
2
Emissions
Brazil 0.0017 0.0002 0.0022 0.0002 7.84 (0.00) 0.84(0.40)
China 0.0033 0.0012 0.0071 0.0003 9.91(0.00) 0.06(0.00)
India 0.0009 0.0002 0.0016 0.0002 12.00(0.00) 0.79(0.36)
Russian Federation 0.0109 0.0012 0.0111 0.0003 0.53(0.60) 0.07(0.00)
South Africa 0.0071 0.0008 0.0078 0.0003 2.85(0.01) 0.19(0.01)
Source: Authors’calculations
Roles of FDI, Energy and Carbon Emission in Convergence or Divergence of... 177
associations. Table 2gives the correlation coefficients of the different pairs of the
variables.
The correlation coefficients as presented in the concerned table show that all the
six pairs of the four variables are highly and positively correlated for all the four
except Russia for the entire period of the study. The computed t values and their
associated probability values for testing the significance of correlation are not shown
in the table to avoid clumsiness. Hence, the four variables are related in BRICS
context.
However, the correlation results for Russia show positive but insignificant results
in the pairs of GDP-CO
2
and FDI-Energy. Also, the correlation is negative and
insignificant for the pair FDI-CO
2
. The insignificant results rule out the effect of the
factors upon the PCGDP for the country.
The study revisits the convergence analysis for the elongated data sets for the
PCGDP in the BRICS nations than the observations made by the studies such as
Phiri (2018), Basel and Rao (2018), Das et al. (2019), Das et al. (2019), etc.
Table 2 Correlation coefficients in the pairs of the variables in 1991–2020
GDP FDI Energy CO
2
Brazil GDP 1 0.94 0.86 0.88
FDI 0.94 1 0.90 0.91
Energy 0.86 0.90 1 0.96
CO
2
0.88 0.91 0.96 1
GDP FDI Energy CO
2
China GDP 1 0.82 0.94 0.94
FDI 0.82 1 0.93 0.94
Energy 0.94 0.93 1 0.99
CO
2
0.94 0.94 0.99 1
GDP FDI Energy CO
2
India GDP 1 0.93 0.98 0.99
FDI 0.93 1 0.94 0.93
Energy 0.98 0.94 1 0.99
CO
2
0.99 0.93 0.99 1
GDP FDI Energy CO
2
Russia GDP 1 0.80 0.43 0.07*
FDI 0.80 1 0.21* 0.02*
Energy 0.43 0.21* 1 0.89
CO
2
0.07* 0.02* 0.89 1
GDP FDI Energy CO
2
South Africa GDP 1 0.54 0.89 0.91
FDI 0.54 1 0.59 0.62
Energy 0.89 0.59 1 0.96
CO
2
0.91 0.62 0.96 1
Notes: * marks show insignificant results, and all the non * marks stand for significant results
178 R. C. Das and A. Nayak
Estimating the sets of Eqs. (1,2&3) the study obtains the results for conver-
gence/divergence in absolute terms in PCGDP. The estimated equation is given
below.
AvgGrthPCGDP ¼20:88 2:02 log PCGDP 1991ðÞRsquare 0:69
Probability 0:09ðÞ0:18ðÞ
The results show the signs of convergence as the coefficient of the regression
coefficient (i.e., β) is negative, and the 69% of the variations in the average growth
rates of per capita incomes of the member countries is explained by the past values
(i.e., corresponding to the year 1991) of the per capita income. But the irony is that
the derived value of the t statistics for the estimated βis 0.18, which allows to accept
the null hypotheses of β¼0. This means the countries are not converging in the per
capita income for the period 1991–2020. The countries are not catching up with the
relatively stronger countries in the group.
As mentioned before, σconvergence captures the overall degree of disparity
among the countries, and if such disparity goes down significantly over the year,
then it is said that the countries are converging. Estimating Eq. 4the results are given
below.
log CV ¼4:42 0:017 tRsquare 0:85
Probability 0:00ðÞ0:00ðÞ
This means there is falling income disparity leading to sigma convergence but
there is no catching up process as there is no absolute convergence. That is why it is
required to investigate the other related variables which supported the falling
dispersion property in terms of conditional convergence. These conditional factors
are considered to be the FDI inflow, energy use and CO
2
emission. Following are the
derived results for conditional convergence with respect to aggregate GDP and per
capita GDP.
The study tests for the conditional convergence in both the aggregate GDP and
per capita GDP to get the results from the broader perspectives. The results for the
GDP show that the coefficient of βis negative and statistically significant along with
the significant results of all the three conditional factors, FDI inflow, energy use and
CO
2
emission. The signs of FDI and Energy are expectedly positive, meaning more
FDI and more energy uses lead to more GDP, but the coefficient of CO
2
is negative,
which means less CO
2
is associated with more GDP. The result for CO
2
is good so
far as the goal of sustainable developmental goal is concerned.
AvgGrthGDP ¼381:27 23:02 log GDP 1991ðÞþ4:31 log FDI þ57:56
logEnergy
45:53logCO2Probability 0:00ðÞ0:00ðÞ0:00ðÞ0:00ðÞ0:00ðÞRsquare 0:95
Roles of FDI, Energy and Carbon Emission in Convergence or Divergence of... 179
The results of conditional convergence for the per capita GDP are given in the
following estimated regression equation.
AvgGrthPCGDP ¼141:81 7:7 log PCGDP 1991ðÞþ2:38 log PCFDI þ17:22
logPCEnergy
13:24logPCCO2Probability 0:00ðÞ0:00ðÞ0:00ðÞ0:00ðÞ0:00ðÞRsquare 0:94
It is observed that the sign of the estimated coefficient of βis negative and
statistically significant along with the significant results of all the three conditional
factors, FDI inflow, energy use and CO
2
emission. The signs of the coefficients of all
the conditional factors are similar to the results under GDP.
Hence, it can be concluded that the members of the BRICS group do not follow
the catching up process, their cross-country income differentials are going down
leading to the notion of better-off ness of the members during the post-BRICS phase.
Further, although there is no catching up in GDP or PCGDP, the countries are
converging to their own steady states in incomes through conditional factors such as
FDI flows, energy uses and CO
2
emissions. Therefore, the neoclassical prediction in
cross-country convergence in income in absolute terms among the BRICS countries
does not work, rather, the countries converge in terms of the conditional factors
accompanying the foreign capital and environmental factors. The role of the initial
period is important only when the factors such as foreign capital and environmental
capital are taken into account. Therefore, foreign capital and environmental capital
are working behind the huge growth of these highly developing group in the world.
There is welcoming news that foreign capital worked well for the countries, but there
is non-appreciable news that nature is getting exploited to get more level and growth
of income of the countries. It is thus recommended to replace the natural capital by
renewable energy and conservation capital to restore the environmental quality and
to achieve the sustainable developmental goals.
5 Conclusion
The study revisited the income convergence among the BRICS countries with an
elongated data set incorporating conditional growth factors such as FDI flow, energy
use and CO
2
emission for the period 1991–2020. The results still do not establish the
existence of absolute convergence in aggregate as well as per capita GDP, although
there are sigma convergence. Further, the results of the cross-country regression
incorporating the three conditional factors establish the significant conditional con-
vergence in two types of incomes where these three factors have worked signifi-
cantly in favor of the convergence dynamics. The results of the conditional
convergence are good so far as economies’growth is concerned but not so good
as it hampers the nature’s stability or carrying capacity.
180 R. C. Das and A. Nayak
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Key Issues for the Improvements of Shallow
Geothermal Investments
Serhat Yüksel, Hasan Dinçer, Alexey Mikhaylov, Zafer Adalı,
and Serkan Eti
1 The General Information for The Geothermal Energy
The world has been experienced a massive change in several decades. Regardless of
the developed level, all countries have been trying to improve their economic and
social infrastructures. The developed countries have allocated huge funds for
research and development expenditures, innovations, and high value-added indus-
trial fields to protect their position and improve their standard of life. Emerging
countries and developing countries have been pursuing catching up with the eco-
nomic life experienced in developed countries. All in all, the countries have endeav-
ored to increase their economic and development level. One of the cornerstones of
economic growth and development strategies is energy. All social and economic
activities in the modern world are directly or directly integrated with energy. The
dominant energy sources are nonrenewable energy resources involving coal, natural
gas, petroleum, and petroleum derivatives (Mikayilov et al., 2020; Liu et al., 2021;
Du et al., 2020). Although the countries can implement the economic and develop-
ment policies through used nonrenewable energy resources to achieve the short-run
objectives, the usage and processing of the nonrenewable energy resources will be
the primary responsibility for the catastrophic. Nonrenewable energy resources
induce environmental degradation, including CO
2
emission, land degradation,
S. Yüksel (*) · H. Dinçer · S. Eti
The School of Business, İstanbul Medipol University, İstanbul, Turkey
e-mail: serhatyuksel@medipol.edu.tr;hdincer@medipol.edu.tr;seti@medipol.edu.tr
A. Mikhaylov
Financial University under the Government of the Russian Federation, Moscow, Russia
Z. Adalı
Artvin Çoruh University, Artvin, Turkey
e-mail: zaferadali@artvin.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_16
183
habitat destruction, and water pollution. Concerning the detrimental effects of the
world’s nonrenewable energy resources, the future generation will be dystopic
worlds in which nature, clean air, and various animal species will be a story. Besides,
the nonrenewable energy resources are linked to a predictable end; in other expla-
nations, utilization runs out of time. Alternatives energy resources have been
examined and developed to sustain and improve economic life and protect the
world for future generations. Renewable energy resources have been defined as
the hope to overcome environmental degradation and become alternative energy
sources for growth and development strategies. The environmental forces involving
sun, wind, and aquifer provide renewable energy sources and unlimited supply
(Dinçer & Yüksel, 2019a,b; Wang et al., 2019; Yüksel et al., 2019; Dinçer et al.,
2019). Compared to nonrenewable energy resources, renewable energy is accepted
as environmentally friendly because of fewer greenhouse gases and pollutions.
There are various types of renewable energy resources; biomass, solar, wind, and
hydropower. Geothermal energy resource has been received growing attention
among the renewable energy resources.
Geothermal energy is a specific energy source that relies on a particular geo-
graphic position based on the near tectonic plates. Geothermal energy uses thermal
fluids collected in rocks and fluids in the core of the earth (Malafeh & Sharp, 2015).
The thermal fluids are achieved through artificial methods involving Flash and
Double Flash power plants and Dry Stream power plants. The utilization of geo-
thermal energy is dependent on the temperature of geothermal resources (Chamorro
et al., 2012). Low temperature ranging 20–70 is employed for industry, producing
chemicals, heating, and cooling. Intermediate temperature denoted 70–150 and high-
temperature presenting above 150 is utilized for electricity generation and heating
system. Geothermal energy resources have superior advantages over the other types
of renewable energy resources because the weather conditions are not significant
factors affecting the effectiveness of the resources (Mertoglu et al., 2003). Geother-
mal energy is a very predictable and reliable source to meet various human needs:
heating, cooling, and electricity. Moreover, geothermal energy is a cleaner energy
resource because some environmental degradations CO
2
, NOX, and SOx emissions
are significantly acceptable. In spite of the superior sides of geothermal energy, there
are some risks resulting from the usage of geothermal energy, and pre-conditions
establish a meeting for the geothermal plants (Labriet et al., 2015).
Furthermore, geothermal energy is one of the most promising renewable energy
resources in electricity generation, heating, cooling, and direct utilization. There are
some drawbacks, risks, and disadvantages to geothermal energy. The primary
weakness in deep geothermal energy is that the specific location based on the active
faults, volcanic, and tectonic plants provide the geothermal energy because the
geothermal energy relies on the thermal fluids stored and heated by the earth’s
hearts. These properties induce the geothermal energy not to be available every-
where. However, the temperature of the thermal fluids has an impact on the utiliza-
tion of geothermal energy and intermediate, and high-temperature fluids are required
to use for heating, cooling, and electricity generation. Therefore, the development
and the utilization of geothermal energy involve many pre-processing steps, which
184 S. Yüksel et al.
create uncertainty and risk. Geothermal energy is beginning with surface reconnais-
sance and exploration drilling, which need 2 to 3 years. The knowledge of explora-
tions, adequate and competent human resources, the needs of the pieces of
equipment for explorations are classified as faced risk factors. The early steps are
the most significant risk because there is uncertainty over the characteristics of the
geothermal resources’temperature and flow capacity, which determine the ability to
drill productive wells and the usage of the geothermal (Speer et al., 2014). After the
pre-step, the establishment of power plants and the thermal fluids cause some risks.
The thermal fluids contain various detrimental chemicals: carbon dioxide, hydrogen
sulfide, methane, mercury, arsenic, argon, and nitrogen. The injection of the thermal
fluids induces the change in the water, surface, and subsurface temperature. How-
ever, nearly geothermal energy resources are adjacent to national parks, fertile
agriculture, and highly intense urbanization. As a result, geothermal energy contains
many risks ranging from the subsurface, surface, air emissions, and the drilling and
well activities that can cause seismicity. All risks involving seismicity, water
contamination, air pollution, noise, flora, and fauna damage lead to the lower social
acceptability of geothermal than other renewable energy projects (Shortall et al.,
2015; Bustaffa et al., 2020; Soltani et al., 2021).
There is also a new development in the geothermal energy fields. The improved
system is called shallow geothermal energy, and it is accepted as one of the most
promising energy resources, especially in heating, cooling, and warm water. In
contrast to conventional (deep) geothermal energy, shallow geothermal energy is
not restricted to a specific area based on active fault systems and tectonic plates. The
sources of shallow geothermal do not rely on thermal fluids. Shallow geothermal is
based on the geographic law in which the temperature is constant and 13c regardless
of the seasons. The stored heat is provided by using simple techniques for heating
and cooling. According to this side, Shallow geothermal energy is applied every-
where below 15-20 m depth. Without depending on thermal fluids, shallow geother-
mal has numerous advantages against conventional geothermal energy, especially in
heating and cooling (Johnston et al., 2011). The negligible required initial capital is
one of the leading superiors. Without the geothermal fluids involve various detri-
mental chemicals, Carbon dioxide, hydrogen sulfide, methane, mercury, arsenic,
argon, and nitrogen, and the aquifer, the harm of shallow geothermal energy is fewer
than the deep geothermal energy (Narsilio & Aye, 2018).
Although shallow geothermal energy is achieved everywhere with simplicity, lost
cost devices, and its effects on the environment are negligible, it has been rare to use
renewable energy resources. However, shallow geothermal energy will play a vital
role in reducing the environmental degradation caused by household energy con-
sumption, such as heating and cooling. In addition to the importance of generating
electricity from renewable energy resources, heating and cooling are also essential in
sustainable environment and development. IEA (2015) underlines that approxi-
mately 20% percent of global energy consumption in the world is associated with
residential energy consumption, and along with these figures, Gi et al. (2018) predict
that the need for energy-providing heating and cooling will be three-time higher than
the amount experienced in 2010.
Key Issues for the Improvements of Shallow Geothermal Investments 185
2 Shallow Geothermal Systems
Shallow geothermal applications have been received massive attention in Europe in
the last decades. The natural underground abilities generate the shallow geothermal
for providing constant temperature, which induces the groundwaters’temperature to
increase. In contrast to deep geothermal energy, the low enthalpy energy source is
possible to utilize as heating and cooling needs of buildings. It is underlined that a
notable benefaction to environmental health can be initiated with a decrease of fossil
fuel consumption by revealing this “hidden treasure,”pure until today, by means of
shallow geothermal systems, and to the national economy with the reduction in the
amount of energy imported and turning to our renewable own resources. There are
around 1.9 million shallow geothermal systems recently in practice in Europe.
Shallow geothermal energy composes 66.5% of geothermal use in Europe. Further-
more, the energy received in European countries with these systems has attained a
total capacity of 26,900 MWth (megawatt thermal). The utilization of shallow
geothermal energy in the world has been varied in terms of heating and cooling. In
middle Europe, the shallow energy system is principally installed to the heating, but
the application of shallow energy aiming to free cooling and active cooling has been
employed in larger commercial installations. As for Northern Europe, shallow
geothermal energy is preferred for heating, while shallow geothermal energy abili-
ties for cooling have been received more attention than heating in Southern Europe.
In Scandinavia, the commercial installations based on high cooling loads have been
determined applications.
Shallow geothermal has a superior appearance compared to nonrenewable and
other renewable energy resources. The prime advantage is that the below 15–20 m
depth provides shallow geothermal energy. Though the effectiveness of the most
renewable energy resources such as solar totally relies on climatic conditions such as
sunny days, gale forces, beachcomber, shallow geothermal energy seem to be more
independent of climatic conditions. As for the economic advantages, there is no
requirement for substantial investment costs in shallow geothermal energy, and it has
a low operating cost and longer life expectancy. Though shallow geothermal energy
does not generate electricity like deep geothermal energy, it is used for heating,
cooling, and warn water provision. According to Eurostat (2018), the approximately
quarterly final energy consumption in the EU in 2016 is associated with household
energy consumption. Nearly 80%of households’energy consumption is related to
building heating and heating water. The same report also underlines that renewable
energy sources provide only 16% of the household’s energy. Within this objective, it
is evident that strengthening the share of shallow geothermal energy for building
heating, cooling, and warm water provision becomes a vital piece of the solutions for
decarbonization (Sanner et al., 2003; Sanner, 1987).
Although geothermal energy is described as the energy achieving from the form
of heat in the depths of the earth, shallow geothermal energy is defined as the system
used heat pump in the heating and cooling, which allows the use of low-temperature
groundwater in the shallow depths. Therefore, shallow geothermal energy is
186 S. Yüksel et al.
available everywhere, equipped with shallow aquifers providing energy sources with
low enthalpy. The earth performs as a collector for the storage of energy achieving
from the sun under the ground. Although Deep geothermal energy is totally derived
from reservoirs heating by plate tectonics and the earth’s core, shallow geothermal
energy is mainly derived from sun rays, and only a tiny proportion of the stored
energy in shallow geothermal energy is generated by internal heat or heat generated
by plate tectonics. Shallow geothermal usage primarily covers the part of the ground
until 100 m depth, but the system is available to apply to deeper areas; however, this
raises the cost. The region of the climatic conditions is one of the most critical factors
impacting the usage of shallow geothermal energy. Suppose a region’s climatic
condition is based on Hot and dry summers and quite rainy in winter. In that case, the
aquifer in the area has essential potential in terms of groundwater resources. The
grounds absorb the sun rays, and the calescent ground increases the groundwater
temperature (Rybach, 2010; Sanner et al., 2003; Sanner, 1987).
Shallow geothermal systems are based on the working principle in which the
stored ground heat from the ground surface down is harnessed by means of
employing various methods. Shallow geothermal usage is not associated with
specific geothermal anomalies. Regarding this property, it can be claimed that
everywhere below the surface provides shallow geothermal energy resources. The
underground offers a reserved and astonishingly large heat source. It is possible to
use Heat storage and heat sink under the earth for the geothermal heat pump.
Shallow geothermal energy relies on the geophysical law based on the underground
abilities for heat sink and heat storage. The scientific evidence of the underground
properties is proven by Antoine-Laurent de Lavoisier (1743–1794), who is the
founder of modern chemistry. Lavoisier observed the ground at a depth of 27 m
below street level with the help of installing a mercury thermometer. According to
the experiment, it is documented that the temperature at the observed depth is
consistent throughout the year. Later, a growing body of experiments in terms of
the underground heat sink has been conducted by various researchers. For example,
Alexander von Humboldt made an observation in Paris. As a result of the statement,
it is noted that the average temperature equals 12 C, and the change in the temper-
ature over the seasons only varies only 0.04 C. Although the underground geother-
mal properties are proven, the first time used heat was stored underground for
heating occurred in the mid-twentieth century. The first plant installation was
recorded in Indianapolis, the USA, in 1945. Since then, a tremendous ground source
heat pump has been experienced in some European countries like Sweden, Switzer-
land, and Germany. Several mechanic studies and observations have been conducted
to exploit the earth as the heat source and heat storage for heat pumps in the
following years. However, an article back in 1947 demonstrates all techniques
employing until today. According to this article, Groundwater wells, horizontal
coils, vertical boreholes, U-pipe, and spiral forms are the leading techniques to
exploit the heat source. In addition, two major methods are bringing shallow
geothermal energy to good use. A heat pump is a device transferring heat from a
lower temperature to a higher temperature, and it has one of the most effective
methods in shallow geothermal energy. The heat pump is also called Ground Source
Key Issues for the Improvements of Shallow Geothermal Investments 187
Heat Pumps, denoted GSHP. There are three primary components in the application
of the GSHP. The first component is that the heat sink under the ground is revealed
or eradicated in terms of usage of shallow geothermal for heating or cooling. The
achieving shallow geothermal reservoir is converted into a suitable temperature level
in the second component. The achieved and converted shallow geothermal sources
are transferred to heat or cold rooms in the final system. Another method is
Underground Thermal Energy Storage System, denoted as UTES. The storage of
heat or cold artificially changes the stored temperature through the UTES system. On
the other hand, the Heat pump system is the dominant figure in applying shallow
geothermal energy (Eugster & Sanner, 2007; Sanner et al., 2003).
A heat-up machine allows heat transport from the inexpedient temperature to a
suitable temperature in terms of heating or cooling. Within this purpose, a driving
compressor is applied as external energy. The working principle of the heat pump is
based on the thermodynamic postulate. The thermodynamic postulate is that the
temperature of a gas increase when it is compressed into a smaller volume. In a heat
pump, refrigerant is diffused by the heat sink, and the external energy typically
achieved from electric power compresses the resulting gas. Therefore, the hot gas is
transferred to the heating system. Then the used gas condenses again to a liquid, and
the fluid comes back into the low-pressure area and becomes cold. The process
continues the mentioned cycle. A ground source heat pump system is also used for
cooling objects. Although the heating mode has been popular in Western Europe for
many years, the reversible heat pump for cooling has been accepted as a new one in
shallow geothermal usage. The cooling mode is called the Geoexchange system, and
the first application was built in Germany in 1987. There are more required factors in
the cooling purpose in contrast to the heating mode. For example, cooling is only
achievable if the cooling load is more miniature than the heating load. Besides, the
climate has become a matter of factors. Arid weather is wanted conditions; other-
wise, the heat pump has to perform as a chiller, or supplementary de-humidification
should be applied to cool (Eugster & Sanner, 2007; Öngen & Ergüler, 2021).
Heat pumps are the essential instruments in shallow geothermal which transfer
heat from heat sources to a cooler. The heat pump is based on the working principle
in which water enters and leaves and its temperature is increased/decreased. There
are two ways of establishing a heat pump system; open-loop and closed-loop
systems. The closed-loop system has been chiefly utilized as a shallow geothermal
mechanism. The closed-loop mechanism considers the ground as the heat source.
The soil temperature is obtained from the ground with the help of pipes horizontally
or vertically installed under the ground. The fluid named the thermal transfer fluid
consisting of water and antifreeze circulates continuously in the closed-loop system
within this application. Heat pumps increase the heat obtained from the ground due
to the heat exchange of the antifreeze fluid. In the closed-loop system, the pipes are
laid horizontally to a depth of 1–2 meters. In contrast, vertically piper laid depends
on the application’s convenience and the purpose of heating or cooling and generally
vertically up to a depth of 100 meters. The open-loop system has been less applied
compared to the closed-loop system. The heat energy is achieved from the ground-
water, rivers, and other water sources through pipes laid in the borehole. The directly
188 S. Yüksel et al.
achieved fluids are transferred to the heat exchanger and next to the heat pump.
Water is pumped through the borehole, and water circulates between two or more
groundwater wells. Drawed water from underground is used for heating or cooling,
and used water injects back into the same aquifer through a second borehole. The
aquifer’s high permeability features play an important role in minimizing the
drawdown when the required amount of water is extracted in the open-loop system
(Hähnlein et al., 2013).
Choosing a suitable GSHP system depend on various factors. The features of
geology and hydrogeology perform a vital role in the right installation system. If the
geologic features of the underground have sufficient permeability, open systems are
recommended to install for the utilization of shallow geothermal energy. Area and
utilization on the surface, the heating and cooling aspects of the buildings, etc., are
also important determinants of the specific installation system.
In the open system, freely flowing underground waters, rivers, and other types of
water sources heating by the solid earth perform as heat sources. One water well is
installed to extract water, and the other well is installed to re-inject it into the same
aquifer. Though an open system is a powerful method to exploit powerful heat
sources at comparably low cost; required some maintenances and the existence of a
suitable aquifer are determinants limiting the open system. In addition to the
sufficient permeability of the aquifers, the composing of the chemical components
in the aquifers becomes a preventive factor. For example, a less harmful substance
such as low iron content should be noticed before utilizing the open system to avoid
problems with corrosion and clogging. Furthermore, an open system is unsuitable
for smaller installations, and a more extensive installation is fitted with an open
system. The most powerful open heat-up system supplied ca. 10 MW has been
operated in Louisville, Kentucky, USA, to heat and cold hotels and offices (Eugster
& Sanner, 2007).
Another method for the usage of shallow geothermal energy is a closed system.
The closed systems can be installed horizontally or vertically. The vertical system is
the oldest version of the closed system. The scientific evidence above mentioned the
constant temperature below a certain depth is achieved through a vertically laid
borehole system. Moreover, the land restriction and available area push the new
technologies to improve. Horizontal methods in the closed system seem to have
numerous advantages in terms of land usage. Especially, western and Central
Europe, where the restriction in the area and the land are so expensive, prefer
some unique horizontal methods to exploit the shallow geothermal for heating and
cooling through relatively dense laid individual pipes (Eugster & Sanner, 2007;
Sanner, 1999; Öngen & Ergüler, 2021).
Climate conditions play a vital role in the applications of renewable energy
resources. For example, the experienced of sunny days is the primary determinant
of solar energy, and the gale forces and the ways of the wind are the primary
indicators of wind turbines. Although Shallow geothermal energy is less dependent
on climate conditions, two primary climate conditions have power limited the
applications of shallow geothermal. For example, the extreme humidity level in
the summer times wherrets the cooling process achieving the ground to a building.
Key Issues for the Improvements of Shallow Geothermal Investments 189
The average temperature in the air is also another essential condition because the
sunny rays provide the earth’s ambient temperature. Another concern over shallow
geothermal energy is environmental limitations, though shallow geothermal energy
induces less ecological degradation. The shallow geothermal energy less cause
global emissions of carbon dioxide and other detrimental ecological substances. In
contrast, some contamination can be experienced in the installations and operational
times of the GSHP system. For example, drilling, boreholes laid can damage
buildings, fauna, and flora. Heating and cooling operational are possible factors
that change the underground temperature, and hence the ground chemistry and
bacterial composition of the underground will be affected. The usage of antifreeze
and the chemical composition of boreholes are other stimulation contaminated the
surface, subsurface, and aquifers. Furthermore, the defined depth of the underground
provides shallow geothermal energy; in other explanations, shallow geothermal is
feasible everywhere. Nevertheless, what types of shallow geothermal energy appli-
cations require some geological conditions. Closed-loop systems seem to be gener-
ally appropriate in all kinds of ground, but thermal properties and drilling may be
regarded as factors impacted by geology. Horizontal loops are placed at a near-
surface varied depth between 1 and 1.5 m. Generally, the tube is made of Polyeth-
ylene, and its size is up to 25 mm. Within this context, the horizontal loop does not
negatively impact the groundwater if this system is correctly dimensioned and built.
Furthermore, the open system relies on more geological conditions because the
existence of aquifer, hydraulic properties, and the chemical components of water
chemistry perform limitation factors on opens-systems. The several perfectives of
hydrogeological conditions have a direct impact on the weel capacity of the open
system. Unfavorable chemical compositions in aquifers, the aquifer’s size and
geometry, and the current user area of the aquifers such as drinking water or
irrigation are the critical parameters preventing open -system. Despite the preventing
factors based on hydrogeological limitations, closed-loop systems are performed as
an alternative (Eugster & Sanner, 2007; Öngen & Ergüler, 2021; Rybach & Eugster,
2010).
The growing current market activities in shallow geothermal energy and the risks
of shallow geothermal energy concerning environmental degradation have caused
the implementation of some legislation and the required license for GSHP installa-
tion (Hähnlein et al., 2013). the abovementioned ecological risk resulting from
shallow geothermal energy is classified into two main principles named groundwater
and subsurface contaminations (Rügner et al., 2006). Regarding the countries with a
progressed GSHP market consisting of Germany, Sweden, Switzerland, and Austria,
the authorities related to water management have published guidelines for the
construction and operation of GSHP installations (Eugster & Sanner, 2007). Fur-
thermore, the comprehensive guidelines and standards are also determined due to
some researcher’sfindings (Sanner, 2008; Hähnlein et al., 2011). There is various
license in the application ranging from the building permits, the mining, the water
management, and protection. Moreover, the relevant authorities have provided the
determined risk potential of the installation and the map used to determine the
suitable GSHP methods. All legal frameworks, the Treaty on the Functioning of
190 S. Yüksel et al.
the European Union (TFEU, 2010) and the European Water Framework Directive
(EU-WFD, 2000), are the most important technical and legal frameworks. If all
information and instruction provided by the authorities, the location, and the indi-
cation of which type of GSHP application are followed by the market players, the
risks of shallow geothermal energy can be mitigated.
3Influencing Factors of Shallow Geothermal Energy
Investments
In this study, it is aimed to determine the factors that are important for increasing
shallow geothermal energy investments. In this framework, balanced scorecard-
based factors (finance-C1, customer-C2, internal processes-C3, research &
development-C4) were taken into account (Xie et al., 2021; Delen et al., 2020;
Yuan et al., 2020; Zhou et al., 2020; Dinçer et al., 2020). The DEMATEL method
was used to determine the importance weights of these factors. This method has been
preferred in many different analyzes in the literature (Jun et al., 2021; Yuan et al.,
2021; Haiyun et al., 2021; Fang et al., 2021; Ding et al., 2021; Dínçer et al., 2021).
The details of the analysis results are given in Table 16.1.
Table 16.1 demonstrates that research and development is the most crucial
balanced scorecard parameter for the improvement of shallow geothermal projects.
Additionally, the internal process has the second-highest weight. On the other side,
finance and customer have lower significance in comparison with others.
4 Conclusion
This chapter focuses on the ways to improve shallow geothermal investment pro-
jects. For this purpose, balance scorecard parameters are evaluated by considering
DEMATEL methodology. It is identified that research and development is the most
crucial balanced scorecard parameter for the improvement of shallow geothermal
projects. Thus, it is strongly recommended that countries should give priority to the
research and development works in this regard. This situation has a positive contri-
bution to implement up-to-date technologies for these projects. Hence, high-cost
problem of the geothermal energy investments can be minimized.
Table 16.1 Analysis Results Factors Weights
Finance-C1 0.2465
Customer-C2 0.2024
Internal Processes-C3 0.2572
Research & Development-C4 0.2829
Key Issues for the Improvements of Shallow Geothermal Investments 191
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Religious Principles for the Development
of Energy Investments
Nikita Makarichev, Tomonobu Senjyu, and Sergey Prosekov
1 Introduction
Ethical the values and philosophical ideas of the Buddhist tradition can undoubtedly
be useful for effective business development. For this, some concepts of Buddhism
need to be translated into a language accessible to western people, including them in
the sphere of business communication. Both eastern and western are worthy of
special attention to experience of using Buddhist philosophy and ethics in the
formation of corporate culture and doing business.
Freedom of action, orientation on commercial success, and profit at any cost
today tearing stable to still a system of capitalism.
In the conditions of modern crisis processes in the global and domestic economies
the ethics of socioeconomic life as a whole again comes to the fore and business in
particular. The importance of an ethical approach to the energy management is
increasingly addressed not only by religious leaders, but also by well-known public
figures and politicians. The understanding of the fact that crisis phenomena in the
energy management are a consequence of the global crisis of modern civilization a
nation that “forgot”about universal moral precepts and traditional spiritual values.
N. Makarichev
Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow,
Russia
T. Senjyu
Department of Electrical and Electronics Engineering, University of the Ryukyus, Nishihara,
Japan
e-mail: b985542@tec.u-ryukyu.ac.jp
S. Prosekov (*)
Financial University under the Government of the Russian Federation, Russian Federation,
Moscow, Russia
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_17
195
Problems faced by modern technogenic civilization indicate the need for
reassessment of values in the spiritual sphere. In this regard, an appeal to the old
experience of world denominations, in particular to Buddhist culture.
This concept contributed to the understanding of the labor process as specific
collective activity, where the collective is compared with individual individuals has a
higher level soul.
The role of ethical standards of Buddhism in the formation of the Japanese
doctrine of corporate social responsibility is analyzed. According to the author, a
wide the spread of corporate social responsibility ideas in Japan was due to the fact
that these principles were adopted by Japanese business circles as a continuation of
their own ethical and religious traditions.
2 Theoretical Background
Thus, Buddhism had a significant impact on the formation of business ethics in
Japan. However, the influence of Buddhism on business development is not limited
to only ethical requirements and justifications. Buddhist philosophy reflected on the
principles, goals, and characteristics of management in the East (Dayong et al., 2020;
Mikhaylov et al., 2018; Nyangarika et al., 2018; Danish et al., 2020,2021; Lisin,
2020; An et al., 2021; Ivanyuk & Berzin, 2020; Ivanyuk & Levchenko, 2020;
Ivanyuk et al., 2020; Ivanyuk, 2018; Ivanyuk & Soloviev, 2019; Conteh et al.,
2021; Uyeh et al., 2021; Moiseev et al., 2021; Grilli et al., 2021).
It is becoming more and more clear speculative capital of global corporations
creating responsible ethically oriented observational and regulatory governing body,
ensuring openness and transparency the work of the world market, the mechanisms
of formation of the structure global regulation. It is about using economically toolkit
contained in religions as system ethical values. One example is the influence of
Protestant ethics on a hundred the rise of capitalism (Denisova et al., 2019;
Nyangarika et al., 2019a,b; Huang et al., 2021a,b; Mikhaylov, 2018a,b,2022;
Meynkhard, 2019,2020; Mikhaylov et al., 2019).
The following example of the positive influence of religion on the energy
management is linked to the Islamic banking system. Koran prohibits usury in all
forms (Bhuiyan et al., 2021; Dong et al., 2021, Mikhaylov, 2021b; Liu et al., 2021,
2022; Saqib et al., 2021; Radosteva et al., 2018; Ranjbar et al., 2017; Rathnayaka
et al., 2018; Sunchalin et al., 2019; Uandykova et al., 2020; Udalov, 2021; Yuksel
et al., 2021a,b,c; Dorofeev, 2020; Mukhametov et al., 2021; Candila et al., 2021).
Buddhism and Confucianism had a great influence on the development of
business ethics in Japan and other countries. In the twenty-first century, world capital
moves to Southeast Asia. According to many researchers, the rapid economic
breakthrough of the countries of Southeast Asia largely shares the ideology of
Confucianism, which not only in China, but also in Korea, Vietnam, Singapore,
Taiwan (Mikhaylov, 2018c; Mikhaylov et al., 2019; Melnichuk et al., 2020; Nie
et al., 2020).
196 N. Makarichev et al.
Confucianism is the basis of unity and integrity region, allowing it to withstand
the expansion of real ideas. In the Confucian model of economics are not opinions
and competition. The main values are maintaining order and respect for hierarchical
relationships. At the same time, the weakness of Confucianism is the overwhelming
dominance of ethics of duty and collectivism (An et al., 2019a,b;2020a,b,c;
Mikhaylov, 2019,2021a; Mikhaylov & Tarakanov, 2020; Moiseev et al., 2020;
Gura et al., 2020; Dooyum et al., 2020; Mikhaylov et al., 2020a,b,c,2021a,b;
Varyash et al., 2020; Zhao et al., 2021; An & Mikhaylov, 2020,2021; Alwaelya
et al., 2021; Yumashev & Mikhaylov, 2020; Yumashev et al., 2020; Mutalimov
et al., 2021; Morkovkin et al., 2020a,b).
3 Significant Findings
The study uses data from Thomson Reuters about 164 countries of the first cycle
(n¼164). The dataset includes GDP growth in Energy in 2018, quantity of
Christians, Muslims, and Buddhists in each country. The regression analysis is a
strong tool for the influence of one or more independent variables.
Comparison of regression results for the economic growth and level of religious-
ness is about 23%. But if clear any values the impact of religion on economic growth
is higher (30–50%). In terms of a stable balance between collectivism, duty and
freedom are of interest. It is the experience of Christianity and Buddhism. Under-
developed economically part of this religious teaching is due to objective factors of
its occurrence and specifically historical conditions. This gave rise to some scientists
are critical of the potential in the field of economic development.
Comparison of regression results for the economic growth and Muslim popula-
tion does not show the so stable link like before (about 10%). And this does not
contribute to economic development, so as the goal of planning in a backward and
poor country is it is customary to get rationalization from the people lifestyle and, in
particular, encourage him to more stubbornly and purposeful work.
Buddhism, they say, is quite capable to directly and indirectly promote social and
economic modernization and to perform constructive and progressive functions.
Studying these countries, researchers came to the conclusion that although
Buddhist monks are not directly related to the leadership, the institution of monas-
ticism through the transfer of value and norms still has a certain impact on unsocial-
economic system, affecting both lifestyle and decision-making on production and
consumption.
Therefore, a number of scientists note a positive role of Buddhism in shaping
business ethics in Japan. The possibility of building a fundamentally new energy
management and many specific recommendations of Buddhism can effectively but
used in corporate activities. It is Buddhist economic philosophy that influenced
Japanese economists, industrialists, entrepreneurs, and corporations effective
leaders.
Religious Principles for the Development of Energy Investments 197
The advantage of socialism is that the ruler state or state controls or regulates
distribution of the flow of wealth. Excessive taxation of capable employers and
diligent workers in favor of the dysfunctional and the lazy are discouraged by
individual initiatives, diligence and diligence. It limits human development
potential.
Buddhist energy management guarantees a viable energy management develop-
ment without damaging or exhausting the environment without harming human
resources.
Malaysian Government Policy also borrowed some management techniques from
Buddhist economic model and raised the energy management Malaysia’s competi-
tiveness. Many modern Buddhists believe that doing business does not contradict the
commandments of Buddhism.
Having them, man can create much better than one who does not have these
resources. Question with costs in the way we make money. To maintain a healthy
attitude towards money, the main idea of a hundredth honesty of the way you earn
them those. It is necessary to clearly understand the source of their income and do
everything so that this source does not run out. The second principle is that we
should enjoy give money, that is, learn to keep our thoughts and the body is in good
health in the process of making money.
4 Conclusions and Discussion
Then aftersales months of spiritual quest in various Buddhist insistence, after which
a completely different dexterity. The ethical and philosophical foundations of the
development of modern economies also lie in the fact that a person must not waste to
vain the forces bestowed by nature, and to live fully life in both the ordinary,
mundane sense and immorally.
So, it becomes obvious that economic growth in itself is not able to lead to
sustainable human community development. Many prominent scientists predict
near-term depletion of natural resources, demographic crisis, and global environ-
mental catastrophe in the event that the modern paradigm human development will
continue over the next decades.
In this regard, scientists are increasingly turning their look at the old experience of
the civilizations of the East, able to achieve harmony between man, society, and
nature. The economic ideal of religions becomes more and more relevant.
The middle harmonious way between extremes of poverty and wealth, which
suggests reasonable costs of energy and resources, on the one hand, and satisfactory
human-flying results, on the other. And the valid but if you compare recommended
by experts in the field global issues benchmarks optimal development modality for
humanity in the twenty-first century with socially economic and sociocultural
foundations of ancient civilizations flow, it turns out that many of these ideals
have long been embodied in life.
198 N. Makarichev et al.
Interest in Buddhist culture, philosophy, and ethics today is not only character-
istic for eastern, but also for western people, some of whom become Buddhists. It
should be noted that Japanese corporations are still practicing classes in Buddhist
temples. Buddhist methods and approaches are universal and may be applicable to
different situations and circumstances of modern life. Buddhist culture aimed at
spiritual improvement of a person and building harmonious society, able to offer
new approaches and models to all modern business world, where ethical standards
and ideals are often violated.
As can be seen, religious beliefs are highly influential on energy investments.
Energy is vital for a country (Zhong et al., 2020). Therefore, countries that meet their
energy needs by importing them from other countries are at serious risk (Yüksel
et al., 2020). In this context, countries urgently need to take actions to support their
own energy resources (Li et al., 2020; Xie et al., 2021). In this framework, renewable
energy investments can be increased. Thus, countries will be able to both have their
own energy resources and produce the energy they need without harming the
environment. In addition, countries may also attach importance to nuclear energy
investments (Yuan et al., 2021; Meng et al., 2021). In this way, it will be possible for
countries to produce uninterrupted energy (Yuksel et al., 2021; Yüksel & Çağlayan,
2020; Dinçer et al., 2020).
In summary, it is essential to increase energy investments for the sustainable
economic development of countries. In this context, it is necessary to pay attention to
all the factors that will increase the efficiency of these investments. Religious beliefs
can also be very effective in this process. In this context, moral feelings play a very
important role in the success of energy investments. For example, in order to
increase the success of nuclear energy investments, necessary precautions should
be taken against the risks in this process. Otherwise, the probability of an accident at
nuclear power plants is quite high. This situation both increases the cost of invest-
ments and endangers people’s lives. Therefore, it is very important to take the
necessary precautions ethically during the installation process of nuclear power
plants.
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204 N. Makarichev et al.
Implications of Energy Subsidies from
Economic Standpoint
Cansın Kemal Can
1 Introduction
The substantial industrial progress and the massive scale of production achieved in
the last two centuries could not have been possible without utilizing the enormous
energy sources of our planet. Nevertheless, notwithstanding its outstanding contri-
bution to economic welfare, fossil energy sources have brought about severe chal-
lenges on social and economic grounds. Thus, in addition to promoting economic
growth in every country, contemporary international society confronts an additional
task of minimizing the side effects of intense energy consumption.
To maximize the economic outcome of energy consumption, the governments
impose subsidy policies in several forms to promote production in certain industries
and to make the energy sources available at lower prices for the consumers. Yet,
despite their positive impact on the economic performance, the energy subsidies also
impair the economic and social posture of the country in numerous ways including
income inequality, forgone revenues, depressed growth, the deteriorating balance of
payments, profligacy in energy consumption. As a result of these detrimental effects
of subsidies, energy consumption culminates in a deterioration in the economy rather
than the intended targets regarding economic development. Despite their theoretical
growth-inducing effects, the energy subsidies mostly give rise to economic disrup-
tion due to their unintended side effects. This controversy entails a firm understand-
ing of those unpleasant repercussions of subsidies to shun the adverse outcomes
through rigorous reform strategies. This study aims to elaborate on the consequences
and the implications of energy subsidies to offer caveats for reducing the counter-
productive impact thereof. To accomplish this objective, in the following section
C. K. Can (*)
Istanbul Medeniyet University, Istanbul, Turkey
e-mail: kemal.can@medeniyet.edu.tr
©The Author(s), under exclusive license to Springer Nature Switzerland AG 2022
H. Dinçer, S. Yüksel (eds.), Sustainability in Energy Business and Finance,
Contributions to Finance and Accounting,
https://doi.org/10.1007/978-3-030-94051-5_18
205
some theoretical considerations are presented followed by primary and secondary
economic implications of energy subsidies on several aspects of the economy such
as output, public finance, balance of payments, income inequality, etc. Then, some
strategies to mitigate the adverse side effects of energy subsidies are discussed
before concluding with final remarks regarding current status of energy subsidy
reform.
2 Theoretical Considerations Regarding the Implications
of Energy Subsidies
Energy subsidies can succinctly be defined as the government regulations on the
energy sources striving to cut the production costs of producers and the energy
expenditures of the households. Also, in some cases, the energy subsidies might be
designed to promote the income of energy suppliers. Mostly, consumer subsidies
occur when the price is set below a threshold level, which is generally equal to the
supply cost. The supply cost of energy oftentimes takes transportation and distribu-
tion costs into account as well. The producer subsidies, on the other hand, involve
aiding the supplier firms through tax reductions or direct price setting.
In general, from consumption viewpoint, energy subsidies are pursued to protect
the accession possibilities of the poorer segments of society to energy resources. In
addition, it is also designed to encourage the use of cleaner and more effective
energy sources and thereby increase the living standards of the public as a whole. By
subsidizing the use of natural gas, for instance, the government aims to eliminate
other energy sources such as firewood or kerosene which are comparatively more
primitive, dirty and cumbersome. Furthermore, these energy sources lead to defor-
estation and air pollution which are additional externalities for the society.
According to Robinson and Mitchell (2020), 69% of the total energy subsidies are
devoted to oil which is followed by gas subsidies which is only 17%. The distribu-
tion of energy subsidies with respect to resource types implies that that the oil is the
most heavily subsidized energy source since it is the most critical and productive
natural resource with its widespread use in each segment of the economy. Another
reason for the existence of intensive oil subsidies is the unending fluctuations in the
international oil prices. Every country strives to preserve their domestic economy
from the volatilities in the oil prices which most of the time occur abruptly. From a
macroeconomic viewpoint, by implementing the energy subsidies, the government
purposes to cushion the economy from fluctuations in the international market.
Energy prices are among the most important factors for the stability of the economy;
therefore, the governments use energy subsidies to protect both the consumers and
the producers from the unpleasant adverse effects of the swings in energy prices. As
such, the government preserves the purchasing power of the consumers while
keeping the competitiveness of the producers at a certain level. Besides, in many
societies, energy subsidies serve the function of the social safety net by facilitating
206 C. K. Can
income distribution while protecting the poor (Edgar Cooke et al., 2016). Thus, they
play a key role in the establishment of well-settled wealth distribution and social
justice in the country.
Nevertheless, notwithstanding their positive aspects, in practice, oftentimes the
energy subsidies fail to reach their intended positive goals and generate a fiscal
burden on the country’s budget generating a substantial amount of deadweight loss.
In fact, the loss in efficiency is the primary reason for the loss in social welfare. In
particular, producer subsidies generally lead to overproduction while consumer
subsidies bring about wasted energy through profligacy in consumption (Parry
et al., 2014). Thus, energy subsidies mostly cause a mismatch between the demand
for and the supply of energy sources in the country. Just as in the case of other types
of government interventions, the end result of the energy subsidies is chiefly
distortionary for the economy and society.
3 Economic Implications of Energy Subsidies
Now that we have explored theoretical considerations for energy subsidies, we can
consider the economic implications of energy subsidies which are technically
reverse taxation. As we mentioned earlier, despite their theoretical economic bene-
fits, the energy subsidies mostly impair the economic activities. Basically, energy
subsidies beget consequences on the economy through three channels: Output level,
public finances and balance of payments.
3.1 Implications on Output
There are several ways through which energy subsidies affect the size of the output
in the economy. Firstly, the output level is impacted by the energy subsidies because
the energy subsidies lead to a reduction in energy investments. Since the competition
is reduced by subsidies towards state-owned enterprises, the new firms have smaller
incentives in investing in those markets especially in developing economies. Lack of
competition in those sectors lead to efficiency losses which cause higher-than-
normal prices in the energy markets of those countries (Barkhordar et al., 2018).
Also, the lack of private investment in those countries brings about reduced energy
capacity, which eventually causes energy shortages. In modern economies, such
shortages are disruptive for growth since production is mostly interrupted due to the
halts in energy production (Bazilian & Onyeji, 2012).
Secondly, the market efficiency is distorted by the aforementioned reduction in
the level of competitiveness in the market. By altering the levels of supply and
demand via market manipulations, the subsidies effectively determine the level of
production and consumption along with the equilibrium price in the market, which is
a genuine violation of the market laws of supply and demand. Under subsidy
Implications of Energy Subsidies from Economic Standpoint 207
schemes, the price is always lower than the market-clearing price and the quantity is
always higher than the equilibrium level. The point here is that the disequilibrium
established by the energy subsidies permeates all sectors of the economy very
swiftly leading to an eventual inefficient allocation in the entire economy
(Wattanakuljarus, 2021).
Also, the subsidized energy source will be used abusively compared to alternative
resources which is another source of disruption for competitiveness. Once the
resource allocation is impaired through energy subsidies, the entire economic activ-
ities plunge due to the mismatch in the supply and demand in each sub-sector of the
economy. Thus, it is clear that energy subsidies lead to malfunctioning market
mechanisms and the consequent economic downturn is inevitable when the energy
subsidies are used excessively.
The final way the energy subsidies affect the economic activities is the crowding-
out effect of the public financial resources spent or forgone for the implementation of
the subsidies. The governments finance energy subsidies either directly through
budgetary transfers or indirectly through relinquished tax revenues. In other
words, there are explicit and implicit ways of financing energy subsidies from the
viewpoint of public finances. The implicit financing leads to a suboptimal level of
taxation since the government forgoes a portion of accruing tax revenue. No matter
which types of financing are used by the government to finance the energy subsidies,
the fiscal space shrinks inefficiently because the financial resources which could
have been used in more efficient and effective projects are diverted to financing
energy subsidies which is by nature a cause of market failure.
3.2 Implications on Public Finances
Public finances are the second channel through which energy subsidies affect the
economy. The sole financier of the energy subsidies is oftentimes the government.
Thus, any surging trend in the cost of energy adversely impacts the government
budget. Any rise in the international oil prices, for instance, brings about a substan-
tial fiscal burden on the economies. In the case of developing countries, the fiscal
space is mostly insufficient to service the fiscal costs of energy subsidies; therefore,
mounting energy subsidy costs consequently lead to a surge in public debt (Acharya
& Sadath Anver, 2017). In this case, the fiscal cost of energy subsidies gets even
higher due to compounding interest on the accumulated debt which was incurred to
finance the energy subsidies. This prevents the government from making more
beneficial and efficient spending since the fiscal space is reduced due to interest
expenditures. Also, some energy subsidies are implemented in the form of tax
reductions or exemptions. If this type of subsidy is preferred, then government
forgoes a portion of its expected revenue in the upcoming periods. This generates
another source of fiscal burden on the public finances since the falling tax revenues
have to be compensated by other sources of financing (Vagliasindi, 2013).
208 C. K. Can
As in the case of increasing energy costs, forgone tax revenues also lead to
excessive borrowing, which is detrimental for developing countries since they are
mostly unable to borrow under good conditions such as long maturities and
low-interest rates. Those countries, mostly suffer from high levels of risk premiums
due to heightened risk of default. The low credibility rating of the sovereign creates
another challenge for the compensation of the financing needs occurring as a result
of energy subsidies in the form of reduced tax revenues. Moreover, due mostly to
politico-economic reasons, the governments attempt the preserve the level of fuel
prices stable even if the international oil prices move upwards (Breisinger et al.,
2019). In order to trim the excessive upward movements in the fuel prices, the
governments oftentimes have to reduce the tax burden on the fuel prices to maintain
a stable price level. Nevertheless, these price stabilization policies lead to a
misallocation of public funds since a substantial amount of budgetary funds which
could have been diverted to more productive areas are used for this purpose. Hence,
the surge in international oil prices brings about a decline in the efficiency of the
overall economy especially in developing countries through budgetary spending
(Coxhead & Grainger, 2018).
According to Granado et al. (2010), the energy subsidies lead to allocative
problems since subsidized products are overused while the others are utilized
below optimal levels. The uncompetitive and suboptimal resource allocation brings
about large deadweight losses in the economy which in turn rises the fiscal bill of the
energy subsidies. The reason is that the uncompetitive and inefficient markets do not
perform at their profit maximizing levels and thereby do not fully utilize their
productive capacity. Therefore, the government tax revenues fall dramatically due
to the poor performance of the economy.
3.3 Implications on Balance of Payments
Energy subsidies also pose a challenge for the economic activities through balance
of payments. The strength of this type of effect is even severer for oil-importing
countries since, under energy subsidy reform, the quantity of energy used in the
country is greater than the regime with no subsidy. In this case, the public funds are
transferred to oil-producing countries and the domestic fiscal space shrinks, which
potentially leads to less government spending on social welfare. This scenario
exacerbates the public balances as well as macroeconomic balances through height-
ened imports and increasing reimbursements. In the oil-exporting countries, on the
other hand, the energy subsidies lead to overconsumption of energy sources. Thus,
these countries cannot fully benefit from the alleviating effects of increasing oil
prices on their balance of payments. In order to meet the surging domestic demand
for energy (thanks to energy subsidies), they need to reduce their energy exports
even in the case of mounting oil prices in the international markets. This reduction
brings about a loss in efficiency in the overall economy along with an improper
allocation of resources as well as deterioration in the balance of payments. The
Implications of Energy Subsidies from Economic Standpoint 209
financial loss from the decline in the energy export results in higher taxes and/or
borrowing, which in turn worsens the public financial balances even further.
4 The Collateral Economic Implications of Energy
Subsidies
Along with their direct effects on the overall economy, energy subsidies can also
have indirect effects on the economic performance. The collateral effects of the
energy subsidies occur due largely to the negative externalities caused by the
implementation of those subsidies (Coady et al., 2015). As mentioned in the earlier
sections, energy subsidies lead to lower prices, which in turn increases the quantity
of energy consumed. The excessive consumption of the subsidized energy gives rise
to overcombustion which is a substantial source of CO
2
emissions and thereby leads
to drastic increases in the level of air pollution. In order to reduce the CO
2
emissions,
the governments have to incur several other costs in addition to the heightened health
and environmental expenditures. Thus, while subsidizing the energy sources, the
governments effectively increase their total cost beyond the nominal cost of
subsidies.
Also, the rate of traffic congestion in heavily subsidized countries is remarkably
high, which brings about an inefficient resource allocation and extravagancy in terms
of time and energy. Moreover, the fuel price reduction through energy subsidies
leads to an increase in the number of cars on the road which in turn give rise to more
fatalities and accidents which are additional sources of fiscal burden on the budget.
In addition, if one type of source of energy is subsidized heavily, then it is preferred
in remarkably high amounts compared to other and potentially cleaner energy
sources due to profit maximization motivations. This situation creates a disincentive
for the private sector for investing in clean energy resources for the same reasons.
Thus, the new investment is diverted to energy-intensive technologies which are
more costly to the economy and the environment. As result, the efficient and cleaner
innovations do not come up, which impels the government to subsidize the old and
costly technologies even further. In other words, energy subsidies generate their own
vicious circle of ineffectiveness.
Along with these aspects, at the micro level, the energy subsidies also affect the
economies through inequalities in income among the social groups in the society.
The reason is that the benefits of the energy subsidies are not equally shared by the
income groups. The low-income group mostly benefits from the energy subsidies
indirectly while the higher income groups utilize the same energy subsidies mostly
directly and become the sole benefiter of the subsidies. For instance, the price
reduction in fuel might lead to a decline in the prices of other products such as
public transportation, agricultural products, etc. Thus, low-income groups mostly
reap benefits through these secondary price reduction channels since they do not
consume the fuel directly unlike high-income society. In other words, the
210 C. K. Can
upper-income group section of the population generally consumes more energy
compared to low-income groups which enable them to reap the full benefit of the
energy subsidies (Granado et al., 2010). In Sub-Saharan Africa, for instance, a large
portion of the population does not even have a proper link to the electricity grid.
Thus, these people can only benefit from the energy subsidies in a collateral manner
(Alleyne, 2013).
In sum, the energy subsidies are mostly not well-designed in terms of sharing the
benefits. Since the subsidies are designed on a quantity-based approach, the more a
household or a firm consumes the subsidized energy, the more benefit they reap from
the economic facilities of the subsidies. The ultimate result of this process is a biased
income distribution which is damaging for the long-run growth path of the economy.
The income gap which occurs as a result of energy subsidies entails a larger amount
of social transfers in each round which is an additional source of fiscal burden on the
budget. In other words, once the energy subsidies are launched, the procedure
automatically creates a compounding cost circle for the public budget (Schaffitzel
et al., 2020).
5 Strategies to Mitigate the Adverse Economic Implications
of Energy Subsidies
In the previous section, we have discussed how the energy subsidies lead to sizeable
deteriorations in the fiscal balances, the overall economic performance along with
societal and environmental damages. At this point, the obvious question is as to
whether it is possible to alleviate the negative externalities and damages caused by
the energy subsidies. The excessive fiscal costs associated with ongoing energy
subsidies can only be reduced by implementing a certain degree of amendments and
reforms in the scale and the scope of the energy policies. Nevertheless, these types of
reforms in the energy subsidies entail detailed analysis of the primary and the
secondary costs of energy subsidies and only then the energy subsidies can be
anchored commensurate with the incurred costs by each segment of the society
(Clements et al., 2013).
In practice, however, several hindrances mostly obscure the proper implementa-
tion of these types of reforms regarding the energy subsidies. One of the most
prominent obstacles to a proper energy reform is the information asymmetries
among the government and society. In particular, in most cases, the households
are not well informed about the total cost of energy subsidies incurred by the
government’s budget (Rentschler & Bazilian, 2017). This information is usually
not shared with society and therefore people are unaware of the extravagantly
diverted funds through energy subsidies. Consequently, society is unable to ponder
on the potential alternative uses of those funds such as education, health, infrastruc-
ture which can directly contribute to their welfare. Therefore, the asymmetric
information brings about a challenge for a proper design of the energy subsidies in
Implications of Energy Subsidies from Economic Standpoint 211
many countries. From economical perspective, these politico-economic trend leads
to lack of transparency in public account and consequently brings about increasing
fiscal costs and declining public welfare (Inchauste & Victor, 2017).
In addition to the information asymmetries, the second hindrance to the mitiga-
tion of adverse effects of energy subsidies is the lack of sovereign credibility,
especially in developing countries. The countries in which lobbying and logrolling
are prevalent are largely shaped by political mistrust since the society does not have
confidence in the way the government will be using the saved funds from the
restructured energy subsidies (Kyle, 2018). According to Alesina et al. (2008),
especially in developing countries, society demands more transfer payments when
the public funds rise since they believe that the government will use the raised funds
in its own interest in a corrupt way rather than promoting public welfare. Hence,
since society believes that some interest groups will reap the full benefits of energy
subsidy reform, it is challenging to implement a full-fledged subsidy reform in those
countries.
Moreover, while designing the energy subsidy plans, it is also essential to foresee
the potential impact of the subsidies on income distributions so as to avoid distor-
tions in income inequalities. As we mentioned earlier, the energy subsidies are
mostly utilized by the high-income group of the society since they consume larger
amounts of the subsidized product. This situation brings about a welfare loss for the
low-income group of the society. Therefore, the energy subsidies in a way generate
an income transfer from low to upper-income group which renders the poor segment
of the society more vulnerable to the price fluctuations (Andriamihaja & Vecchi,
2007). Nevertheless, in practice, it is quite a challenge for the authorities to adjust the
design of the energy subsidies to incorporate rationing among different income
groups of the society. Also, the subsectors of the society which potentially face
larger losses due to energy subsidy reforms are mostly well-organized and are
experienced in cooperative acting such as unions, commercial interest groups, etc.
Thus, in the case of an energy subsidy reform, they can withstand the government in
a collective and powerful manner unlike households with loose formation. There-
fore, even though the government needs to find a midway between the interests of
households and the other interest groups while designing energy subsidies, the
energy subsidies, per se, are burdensome for the government budget and tailoring
these subsidies for reducing the income inequality generating effects makes them
even costlier for the fiscal balances. Hence, the governments are mostly impelled by
the interest groups to overlook the income gap generating effects of energy
subsidies.
Besides, from a macro-fiscal perspective, redesigning an energy subsidy policy
causes a rise in expectations regarding inflation and price fluctuations since remov-
ing subsidies increases the energy prices and since energy is the most important input
for many industries, the inflationary expectations soar in the entire economy swiftly.
As in the case of welfare-preserving policies for the poor, the government needs to
apply macroeconomic policies to oversee the price fluctuations which occur as an
outcome of the energy subsidy reform (Sovacool, 2017). The potential short- and
medium-term effects of each policy alternative should be assessed in detail. The
212 C. K. Can
short-term effects on inflation mostly depend on the share of the specified product in
the price index basket while the medium effects are influenced by the demand
pressures and expectations. The optimal policy choice entails a rigorous evaluation
of the ultimate temporal costs associated with the energy subsidies. Otherwise, the
inflation will increase in a propagative manner depending on the size of the response
by the CB.
There are several factors for determining the extent to which government subsi-
dies give rise to inflation in the economy. The expectations of the market players, the
coverage of the energy reform, the prevalence of the subsidized product in the
market as input are the most prominent ones among many others. If the energy
prices are represented by a large share in the price index basket and if the energy is
used intensively in the country, then the inflationary effect of energy subsidy will be
remarkably higher compared to other countries. In addition, the credibility rating of
the central bank plays a key role in the strength of inflationary forces of energy
subsidies. If the CB exhibited poor performance in controlling the inflation in the
past, the households and the firms will adjust their expectations accordingly and alter
their positions to avoid the unpleasant effects of looming inflationary environment
which will further contribute to the realizations of higher inflation in the country. In
the case of low CB credibility, even a one-shot price hike might result in a severe
upward movement in inflation. Thus, a controlled a reasonable reaction by the CB is
more effective than amplified excessive reactions which aim to stabilize the price
fluctuations in a very limited time interval. The ultimate target of the CB policies
should be to reduce the permeative effect of an abrupt price increase in the subsi-
dized sector and protect stability.
The link between subsidy removal and price volatility also leads to heightened
concerns about the competitiveness of certain sectors of the economy in the inter-
national market. In other words, if the energy subsidy is removed or redesigned in
one country, the companies in the same sector from the countries with existing
subsidies become comparatively competitive which reduces the profitability of the
companies where the energy subsidies are removed. Thus, the authorities need to
consider the trade-off between commercial loss of the private sector and income
inequality enlargement due to the implementation of the energy subsidies (Töpfer,
2004).
Thus, in order to shun those unpleasant scenarios, the energy subsidies should be
designed with a long-term goal in mind. During the planning stage of the subsidies,
the long-term objectives need to be set in a clear-cut manner to reduce the trade-off
assessments in the following stages of the energy subsidies. Besides, the alternative
scenarios regarding the potential costs incurred by society and the economy need to
be forecasted before the energy subsidies are designed. According to the forecast
results, to avoid potential conflicts, the subsidies should be redesigned to minimize
the impact of the incipient social crisis in the country. Also, after rigorously
forecasting the costs associated with the ongoing subsidies, the subsidy plan needs
to be approved by the parties involved in the subsidy such as households, enter-
prises, unions, etc. In this manner, the above-mentioned conflicts between interest
groups can be overcome with negotiations before the energy subsidies are put in
Implications of Energy Subsidies from Economic Standpoint 213
practice. Lack of proper communication among government and interest groups
might bring about strong withstand in the later stages of the process. Hence, the
information about the benefits and the costs of the energy subsidies needs to be
publicly available in order for the groups to elaborate on the opportunity costs of
subsidy reforms. Thus, it is clear that transparency is a key element in the perfor-
mance of energy subsidies.
In addition, to achieve the long-term targets of the energy subsidies, it is more
appropriate to implement back-loading price adjustments rather than front-loading
strategies. The former type of pricing involves a gradual-alteration in the price of the
subsidized product, whereas the latter refers to a case where the prices are changed
abruptly. In the case of front loading, it is possible to receive resistance from interest
groups since no time is allowed for adjustment. In the back-loading case, however,
the involved parties are able to modify their position and optimize their consumption
behaviour accordingly which is less distortionary for their budget. It is worthwhile to
stress that it is crucial for the government to implement measures to preserve the
welfare of the low-income group against the adverse effects of energy subsidies.
Despite the fact that back-loading is an effective policy in this regard, it is by no
means sufficient and requires additional measures to be taken. The additional
measures to compensate the welfare loss of the poor might include, vouchers,
transfers, specific tax cuts, etc., depending on the country-specific conditions.
6 Final Remarks
The energy subsidies incentivize the overuse of energy sources extravagantly. The
subsidies targeting the producers lead to inefficiencies in the overall economy while
the consumer subsidies give rise to income inequalities since the subsidies are
mostly reaped by the wealthier segment of the society. Thus, it is worthwhile to
abandon or minimize energy subsidies all over the world. Also, the ongoing transi-
tion trend in the energy sector towards green energy sources is also disrupted by
reinforced production and consumption patterns through subsidies. Besides, energy
subsidies grant a spurious advantage to implementing countries which impels the
other countries to adopt subsidy trend to avoid arbitrage behaviour. Nevertheless,
despite their detrimental effects subsidies are challenging to remove due to political
reasons. As such, the G20 countries had committed to phasing out inefficient fossil
fuel subsidies over the medium term in 2010 but no significant progress has been
achieved thus far (Farid, 2016). Currently, similar attempts and intentions are
declared by Chinese and US officials, but past experiences prove that those attempts
are unlikely to achieve intended results in eliminating subsidies in the medium term.
However, in recent years, the fuel prices are comparatively low compared to former
years (Benes et al., 2015). Thus, it can be feasible for countries to reduce energy
subsidies in this term since currently no overuse is demanded globally. Besides, the
pandemic has already posed an unprecedented fiscal burden on the budget of each
country and the fiscal burden of energy subsidies has been added on top of the fiscal
214 C. K. Can
cost of a pandemic, therefore the governments should reduce the energy subsidies in
order to defer a potential fiscal downturn.
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