Energy Market Bubbles under the Green Transition

Abstract

.

Russia’s weaponization of gas supplies has heightened concerns over the energy trilemma—security, affordability, and sustainability—emphasizing the need to reduce dependence on volatile fossil fuel markets. This paper investigates speculative price dynamics in energy markets during the recent energy crisis, focusing on gas, electricity, low-carbon hydrogen, and renewable Power Purchase Agreements (PPAs). We apply the Phillips, Shi, and Yu (2015) mild explosivity (PSY) test to daily and weekly benchmark price series to detect and date-stamp bubble episodes. Our analysis identifies two significant periods of widespread exuberance: one beginning in mid-2021 and another peaking in August 2022, coinciding with the Nord Stream I pipeline shutdown. These results provide empirical evidence of boom-and-bust cycles driven by both geopolitical supply shocks and market speculation. The findings stress the structural fragility of fossil-based energy systems and reinforce the urgency of accelerating the transition toward more stable, low-carbon energy alternatives.