How Do Carbon Market and Fossil Energy Market Affect Each Other During the COVID-19, Russia–Ukraine War and Israeli–Palestinian Conflict?

Despite the close linkage between carbon markets and fossil fuel markets, minimal research has investigated their co-movement dynamics during times of heightened geopolitical instability and public health crises, including the COVID-19 pandemic, Israeli–Palestinian conflict, and the Russia–Ukraine war. Most studies use conditional mean regression models for testing linear Granger causality, which falls short in assessing time-varying causal relationships. This paper employs a time-varying Granger causality framework to examine the dynamic linkages between fossil fuel markets and carbon markets across multiple time horizons. This methodology enables the evaluation of causal relationships that evolve over time, providing deeper insights into how the carbon market interacts with traditional fossil fuel markets. The study examines causal linkages among carbon, coal, and oil prices from 2 January 2018 to 11 July 2025, using data from Wind Database. The findings reveal a short-lived yet highly significant bidirectional causality between the carbon and fossil fuel markets during the COVID-19 period, whereas a sustained and highly significant bidirectional causal relationship emerges after the onset of the Russia–Ukraine war. During the outbreak of the Israeli–Palestinian conflict, this linkage continued without major disruptions or directional shifts. Furthermore, the recursive evolution approach, based on variable sub-window sizes, detects additional evidence of significant bidirectional causal relationships among carbon, coal, and oil prices. These discoveries can serve as valuable inputs for investors and policymakers, enabling them to make informed decisions that protect their interests and ensure market stability. Additionally, coal prices showed greater persistence than oil prices in these bidirectional causal links.