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Dynamic Spillovers between Carbon Price and Power Sector Returns in China: A Network-Based Analysis before and after Launching National Carbon Emissions Trading Market

Author

Listed:
  • Jing Deng

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Yujie Zheng

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Yun Zhang

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Cheng Liu

    (Research Centre for the Two Mountains Theory and Sustainable Development, Beijing Forestry University, Beijing 100083, China)

  • Huanxue Pan

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

Abstract

The launch of the national carbon emissions trading (CET) market has resulted in a closer relationship between China’s CET market and its electricity market, making it easy for risks to transfer between markets. This paper utilizes data from China’s CET market and electric power companies between 2017 and 2023 to construct the spillover index model of Diebold and Yilmaz, the frequency-domain spillover approach developed by Barun’ik and Křehl’ik, and a minimum spanning tree model. The comparison is made before and after the launch of the national CET market. Subsequently, this paper examines the market spillover effects, as well as the static and dynamic properties of network structures, considering both the time domain and frequency-domain perspectives. The research findings suggest the following: (1) There is a strong risk spillover effect between China’s CET market and the stock prices of electric power companies; (2) There is asymmetry in the paired spillover effects between carbon trading pilot markets and the national CET market, and differences exist in the impact of risk spillovers from power companies between the two; (3) The results of the MST model indicate that the risk contagion efficiency is higher in the regional CET pilot stage compared to the national CET market launch stage, with significant changes occurring in key nodes before and after the launch of the national CET market; (4) Both the dynamic spillover index and the standardized tree length results demonstrate that crisis events can worsen the risk contagion between markets. Besides offering a theoretical foundation and empirical evidence for the development of China’s CET and electricity markets, the findings of this paper can provide recommendations for financial market participants as well.

Suggested Citation

  • Jing Deng & Yujie Zheng & Yun Zhang & Cheng Liu & Huanxue Pan, 2023. "Dynamic Spillovers between Carbon Price and Power Sector Returns in China: A Network-Based Analysis before and after Launching National Carbon Emissions Trading Market," Energies, MDPI, vol. 16(14), pages 1-27, July.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:14:p:5578-:d:1201058
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    References listed on IDEAS

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    1. Li Zhang & Hao Li & Zhumeng Song & Wei Shi & Wenxiang Sheng, 2024. "Measurement of Carbon Total Factor Productivity in the Context of Carbon–Electricity Market Collaboration: An Application of Biennial Luenberger Productivity Index," Energies, MDPI, vol. 17(5), pages 1-19, March.

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