Mapping risk transmission in China's energy industry chain: Insights derived from the industry chain structure

The study aims to explore the extreme spillovers among China's energy industries from both supply and demand sides by selecting 11 upstream and downstream sectors using the QVAR connectedness method. It further tends to investigate the micro driving mechanism from the perspective of industry chain structure based on China's input-output table. The empirical results are as follows. First, the study reveals that extreme market conditions significantly intensify the risk spillover among China's energy industries. The connectedness index jumps from 68% under normal conditions to 80% during extreme conditions. Specifically, risk spillovers in extreme conditions derived primarily from the Electricity, Heat Production and Supply and Petrochemical industries, while the former accounts for the most significant contributor under normal circumstances. Second, spillover network of the energy industry chain indicates that except for electricity and petrochemical, the Basic Chemical Material and Ferrous Metals industries are the main risk transmitters, while the Coal industry remains the primary receiver. Third, the industry chain structure can better explain the tail risk transmission in energy industry chain, which is mainly from downstream customers to upstream suppliers. During the European energy crisis, the influence of industry chain structure on risk transmission weakens, but the transmission path does not change. This paper provides a new thinking of "industrial governance" for steady promotion of energy transition and prevention of systemic risks in the energy sector.