IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v254y2022ipas0360544222010799.html

A systemic analysis of dynamic frequency spillovers among carbon emissions trading (CET), fossil energy and sectoral stock markets: Evidence from China

Author

Listed:
  • Wu, Ruirui
  • Qin, Zhongfeng
  • Liu, Bing-Yue

Abstract

The carbon emission trading (CET) market is a critical mechanism to reduce CO2 emissions, which is connected with energy and stock markets. The existing literature mainly explores the relationship between CET market and a certain type of market as well as is limited to time-domain perspective. Using the Diebold-Yilmaz and Barunik-Krehlik methods, this work aims to systematically investigate the dynamic frequency spillovers among CET, fossil energy (coal, crude oil and natural gas) and sectoral stock markets in China. The results indicate: the total spillover is contributed by the short-term (within 1 month) spillover; the net spillovers of China's regional CET markets are almost negative and also dominated by the short-term spillovers; the net pairwise spillovers between CET and fossil energy markets are mainly negative, and the spillovers to CET markets from natural gas market are greater than from coal market since 2018; the net pairwise spillovers between CET and sectoral stock markets are almost all negative, and moreover the indices will be larger for the sectors in which the local key emitters are located; finally, the net pairwise spillover between CET and stock markets are obviously weaker than that between crude oil and stock markets.

Suggested Citation

  • Wu, Ruirui & Qin, Zhongfeng & Liu, Bing-Yue, 2022. "A systemic analysis of dynamic frequency spillovers among carbon emissions trading (CET), fossil energy and sectoral stock markets: Evidence from China," Energy, Elsevier, vol. 254(PA).
    • Handle: RePEc:eee:energy:v:254:y:2022:i:pa:s0360544222010799
    DOI: 10.1016/j.energy.2022.124176
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544222010799
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2022.124176?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Levin, Todd & Kwon, Jonghwan & Botterud, Audun, 2019. "The long-term impacts of carbon and variable renewable energy policies on electricity markets," Energy Policy, Elsevier, vol. 131(C), pages 53-71.
    2. Chang, Kai & Chen, Rongda & Chevallier, Julien, 2018. "Market fragmentation, liquidity measures and improvement perspectives from China's emissions trading scheme pilots," Energy Economics, Elsevier, vol. 75(C), pages 249-260.
    3. Marimoutou, Vêlayoudom & Soury, Manel, 2015. "Energy markets and CO2 emissions: Analysis by stochastic copula autoregressive model," Energy, Elsevier, vol. 88(C), pages 417-429.
    4. Chang, Kai & Ye, Zhifang & Wang, Weihong, 2019. "Volatility spillover effect and dynamic correlation between regional emissions allowances and fossil energy markets: New evidence from China’s emissions trading scheme pilots," Energy, Elsevier, vol. 185(C), pages 1314-1324.
    5. Zhang, Dayong & Ji, Qiang & Kutan, Ali M., 2019. "Dynamic transmission mechanisms in global crude oil prices: Estimation and implications," Energy, Elsevier, vol. 175(C), pages 1181-1193.
    6. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    7. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy markets and CO2 emissions: Analysis by stochastic copula autoregressive model," Post-Print hal-01456125, HAL.
    8. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    9. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy Markets and CO2 Emissions: Analysis by Stochastic Copula Autoregressive Model," Working Papers halshs-01148746, HAL.
    10. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    11. Wen, Fenghua & Zhao, Lili & He, Shaoyi & Yang, Guozheng, 2020. "Asymmetric relationship between carbon emission trading market and stock market: Evidences from China," Energy Economics, Elsevier, vol. 91(C).
    12. Oestreich, A. Marcel & Tsiakas, Ilias, 2015. "Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 294-308.
    13. Lin, Boqiang & Chen, Yufang, 2019. "Dynamic linkages and spillover effects between CET market, coal market and stock market of new energy companies: A case of Beijing CET market in China," Energy, Elsevier, vol. 172(C), pages 1198-1210.
    14. Jiménez-Rodríguez, Rebeca, 2019. "What happens to the relationship between EU allowances prices and stock market indices in Europe?," Energy Economics, Elsevier, vol. 81(C), pages 13-24.
    15. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    16. Hammoudeh, Shawkat & Nguyen, Duc Khuong & Sousa, Ricardo M., 2014. "Energy prices and CO2 emission allowance prices: A quantile regression approach," Energy Policy, Elsevier, vol. 70(C), pages 201-206.
    17. Arvaniti, Maria & Habla, Wolfgang, 2021. "The political economy of negotiating international carbon markets," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    18. Zeng, Shihong & Nan, Xin & Liu, Chao & Chen, Jiuying, 2017. "The response of the Beijing carbon emissions allowance price (BJC) to macroeconomic and energy price indices," Energy Policy, Elsevier, vol. 106(C), pages 111-121.
    19. Jozef Baruník & Tomáš Křehlík, 2018. "Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk," Journal of Financial Econometrics, Oxford University Press, vol. 16(2), pages 271-296.
    20. Kim, Hyun Seok & Koo, Won W., 2010. "Factors affecting the carbon allowance market in the US," Energy Policy, Elsevier, vol. 38(4), pages 1879-1884, April.
    21. Anton, Sorin Gabriel & Afloarei Nucu, Anca Elena, 2020. "The effect of financial development on renewable energy consumption. A panel data approach," Renewable Energy, Elsevier, vol. 147(P1), pages 330-338.
    22. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    23. Wang, Yudong & Guo, Zhuangyue, 2018. "The dynamic spillover between carbon and energy markets: New evidence," Energy, Elsevier, vol. 149(C), pages 24-33.
    24. Gong, Xu & Shi, Rong & Xu, Jun & Lin, Boqiang, 2021. "Analyzing spillover effects between carbon and fossil energy markets from a time-varying perspective," Applied Energy, Elsevier, vol. 285(C).
    25. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.
    26. Si, Deng-Kui & Zhao, Bing & Li, Xiao-Lin & Ding, Hui, 2021. "Policy uncertainty and sectoral stock market volatility in China," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 557-573.
    27. Zhao, Xin & Han, Meng & Ding, Lili & Kang, Wanglin, 2018. "Usefulness of economic and energy data at different frequencies for carbon price forecasting in the EU ETS," Applied Energy, Elsevier, vol. 216(C), pages 132-141.
    28. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    29. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy Markets and CO2 Emissions: Analysis by Stochastic Copula Autoregressive Model," AMSE Working Papers 1520, Aix-Marseille School of Economics, France.
    30. Bing‐Yue Liu & Qiang Ji & Duc Khuong Nguyen & Ying Fan, 2021. "Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2612-2636, April.
    31. Zeynep Senyuz, 2011. "Factor analysis of permanent and transitory dynamics of the US economy and the stock market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 975-998, September.
    32. A. C. Christiansen & A. Arvanitakis & K. Tangen & H. Hasselknippe, 2005. "Price determinants in the EU emissions trading scheme," Climate Policy, Taylor & Francis Journals, vol. 5(1), pages 15-30, January.
    33. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    34. Bouri, Elie & Chen, Qian & Lien, Donald & Lv, Xin, 2017. "Causality between oil prices and the stock market in China: The relevance of the reformed oil product pricing mechanism," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 34-48.
    35. Wang, Xunxiao, 2020. "Frequency dynamics of volatility spillovers among crude oil and international stock markets: The role of the interest rate," Energy Economics, Elsevier, vol. 91(C).
    36. Alola, Andrew Adewale, 2022. "The nexus of renewable energy equity and agricultural commodities in the United States: Evidence of regime-switching and price bubbles," Energy, Elsevier, vol. 239(PD).
    37. Anton, Sorin Gabriel, 2021. "The impact of temperature increase on firm profitability. Empirical evidence from the European energy and gas sectors," Applied Energy, Elsevier, vol. 295(C).
    38. Moreno, Blanca & Pereira da Silva, Patrícia, 2016. "How do Spanish polluting sectors' stock market returns react to European Union allowances prices? A panel data approach," Energy, Elsevier, vol. 103(C), pages 240-250.
    39. Zhao, Zhen-yu & Zhu, Jiang & Xia, Bo, 2016. "Multi-fractal fluctuation features of thermal power coal price in China," Energy, Elsevier, vol. 117(P1), pages 10-18.
    40. Balcılar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat & Nguyen, Duc Khuong, 2016. "Risk spillovers across the energy and carbon markets and hedging strategies for carbon risk," Energy Economics, Elsevier, vol. 54(C), pages 159-172.
    41. Veith, Stefan & Werner, Jörg R. & Zimmermann, Jochen, 2009. "Capital market response to emission rights returns: Evidence from the European power sector," Energy Economics, Elsevier, vol. 31(4), pages 605-613, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yi Yao & Lixin Tian & Guangxi Cao, 2022. "The Information Spillover among the Carbon Market, Energy Market, and Stock Market: A Case Study of China’s Pilot Carbon Markets," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    2. Man, Yuanyuan & Zhang, Sunpei & He, Yongda, 2024. "Dynamic risk spillover and hedging efficacy of China’s carbon-energy-finance markets: Economic policy uncertainty and investor sentiment non-linear causal effects," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1397-1416.
    3. Yi, Qing & Jiang, Yuanying, 2025. "Time-frequency spillovers between carbon, fossil fuels, and clean energy markets: New insights from the TVP-VAR framework," Energy, Elsevier, vol. 323(C).
    4. Liu, Jianing & Man, Yuanyuan & Dong, Xiuliang, 2023. "Tail dependence and risk spillover effects between China's carbon market and energy markets," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 553-567.
    5. Lovcha, Yuliya & Perez-Laborda, Alejandro & Sikora, Iryna, 2022. "The determinants of CO2 prices in the EU emission trading system," Applied Energy, Elsevier, vol. 305(C).
    6. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Noman, Ambreen, 2021. "The volatility connectedness of the EU carbon market with commodity and financial markets in time- and frequency-domain: The role of the U.S. economic policy uncertainty," Resources Policy, Elsevier, vol. 74(C).
    7. Demiralay, Sercan & Gencer, Hatice Gaye & Bayraci, Selcuk, 2022. "Carbon credit futures as an emerging asset: Hedging, diversification and downside risks," Energy Economics, Elsevier, vol. 113(C).
    8. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    9. Qi, Shaozhou & Pang, Lidong & Li, Xinqiang & Huang, Lin, 2025. "The dynamic connectedness in the “carbon-energy-green finance” system: The role of climate policy uncertainty and artificial intelligence," Energy Economics, Elsevier, vol. 143(C).
    10. Dai, Xingyu & Xiao, Ling & Wang, Qunwei & Dhesi, Gurjeet, 2021. "Multiscale interplay of higher-order moments between the carbon and energy markets during Phase III of the EU ETS," Energy Policy, Elsevier, vol. 156(C).
    11. Chun Jiang & Yi-Fan Wu & Xiao-Lin Li & Xin Li, 2020. "Time-frequency Connectedness between Coal Market Prices, New Energy Stock Prices and CO 2 Emissions Trading Prices in China," Sustainability, MDPI, vol. 12(7), pages 1-17, April.
    12. Konstantinos N. Konstantakis & Panayotis G. Michaelides & Panos Xidonas & Stavroula Yfanti, 2025. "Carbon emissions and sustainability in Covid-19’s waves: evidence from a two-state dynamic Markov-switching regression (MSR) model," Annals of Operations Research, Springer, vol. 347(1), pages 217-239, April.
    13. Hanif, Waqas & Arreola Hernandez, Jose & Mensi, Walid & Kang, Sang Hoon & Uddin, Gazi Salah & Yoon, Seong-Min, 2021. "Nonlinear dependence and connectedness between clean/renewable energy sector equity and European emission allowance prices," Energy Economics, Elsevier, vol. 101(C).
    14. Pilar Gargallo & Luis Lample & Jesús A. Miguel & Manuel Salvador, 2021. "Co-Movements between Eu Ets and the Energy Markets: A Var-Dcc-Garch Approach," Mathematics, MDPI, vol. 9(15), pages 1-36, July.
    15. Maneejuk, Paravee & Huang, Wucaihong & Yamaka, Woraphon, 2025. "Asymmetric volatility spillover effects from energy, agriculture, green bond, and financial market uncertainty on carbon market during major market crisis," Energy Economics, Elsevier, vol. 145(C).
    16. Fang, Sheng & Lu, Xinsheng & Li, Jianfeng & Qu, Ling, 2018. "Multifractal detrended cross-correlation analysis of carbon emission allowance and stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 551-566.
    17. Yang, Ming-Yuan & Chen, Zhanghangjian & Liang, Zongzheng & Li, Sai-Ping, 2023. "Dynamic and asymmetric connectedness in the global “Carbon-Energy-Stock” system under shocks from exogenous events," Journal of Commodity Markets, Elsevier, vol. 32(C).
    18. Chen, Jinyu & Liang, Zhipeng & Ding, Qian & Liu, Zhenhua, 2022. "Quantile connectedness between energy, metal, and carbon markets," International Review of Financial Analysis, Elsevier, vol. 83(C).
    19. Bouteska, A. & Rahman, Mashuk & Hassan, M. Kabir & Sanchez, Benito A., 2025. "Re-examining the nexus between Chinese carbon markets with energy and non-energy commodity markets in a novel risk spillover network approach," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    20. Lin, Boqiang & Chen, Yufang, 2019. "Dynamic linkages and spillover effects between CET market, coal market and stock market of new energy companies: A case of Beijing CET market in China," Energy, Elsevier, vol. 172(C), pages 1198-1210.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:254:y:2022:i:pa:s0360544222010799. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.