A multi-scale analysis of spillover effects between the Chinese carbon market and related markets: The impact of the geopolitical risk

This study examines the spillover effects between China's carbon market and related markets, considering geopolitical factors. By using the spillover index method, MEMD decomposition, and the TVP-VAR model, the paper quantifies the spillovers at multiple scales. The findings indicate that: (1) significant spillover effects exist among China's carbon, energy, and financial markets, with the oil market being the major risk spillover source and the foreign exchange market playing an important intermediary role in risk transmission; (2) spillover effects are heterogeneous across time scales, with medium to long-term spillovers being the most prominent, suggesting long-term fundamental factors primarily drive risk spillovers; (3) spillover effects exhibit time-varying characteristics, with intensified spillovers typically triggered by economic crises, geopolitical events, policy changes, and other major incidents; (4) geopolitical risks have a significant impact on spillovers within the “carbon-energy-finance” system, though the impact's magnitude and direction vary depending on the specific geopolitical event. These results provide valuable guidance for policymakers and investors in China and other developing countries on the operation and investment of carbon markets.