Effects of the Paris Agreement on new energy investments: Do energy risks play a role? Evidence from (multivariate) time-varying quantile regression

Abstract

In this study, we examine the dynamic and heterogeneous impact of the Paris Agreement on new energy investments across four key sectors: clean energy, clean technology, smart grids, and electric vehicles while controlling for the effect of energy risks. Utilizing advanced time-varying quantile regression (TVQR) and multivariate time-varying quantile regression (m-TVQR) techniques, the analysis captures how the influence of global climate policy has evolved overtime and across the distribution of investment outcomes between December 30, 2016 and November 8, 2024. Results reveal that the Paris Agreement’s effect is far from uniform; it varies significantly across time, investment scale, and sectoral focus. Notably, the influence intensified in the post-2020 period, coinciding with the COVID-19 green recovery push, but also displayed volatility in response to geopolitical shocks such as the Russo-Ukraine war. The m-TVQR model, which accounts for exogenous energy risks, outperforms the standard TVQR by offering sharper and more policy-relevant insights. Overall, while the Paris Agreement significantly influenced all the measures of new investment, clean energy and technology investments were not as responsive to policy signals as smart grids and electric vehicles. These findings underscore the Paris Agreement’s critical role as both a regulatory and market-shaping force in the global energy transition. The study contributes to the growing empirical literature on climate policy effectiveness and offers practical recommendations for policymakers seeking to align national investment flows with international climate commitments.