Relations between fossil fuel returns and climate change variables using canonical correlation analysis

This study identifies the relations between fossil fuel (FF) prices and climate change (CC) by canonical correlation (Cj) analysis of the layer data. The variable set Y includes the oil, natural gas, and coal price returns, whereas variable set (X) comprises green energy index, carbon dioxide (CO2), temperature, and precipitation. This article discusses the application and principle of Cj analysis in the context of the study variables. In particular, the paper examines the relationship between the CC-related variables, or the “greening of the world” and their influence on the pricings of oil, gas, and coal during the same periods. The significant relations (p < 0.01) were the Cj between variable sets X and Y and one set of canonical variates. FFs return contributed most heavily to the relationship, whereas the CC variables played a lesser role.