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Risk spillover within the carbon-energy system – New evidence considering China's national carbon market

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  • Tang, Chun
  • Yang, Guangyi
  • Liu, Xiaoxing

Abstract

The implementation of China's national carbon market trading policy forms a unique model of parallel national and pilot markets, and makes its risk spillover relationship with energy markets a new issue to be explored. The risk transmission network of China's carbon-energy system is constructed using the connectedness approach in this paper, which also investigates the size, structure, time-varying characteristics, and long- and short-term differences of risk contagion as well as the role of major events in causing risk spillovers. We find that, first, there exists a certain degree of risk contagion within the carbon-energy system that is affected by short-term risk spillovers and is most pronounced at the right-tailed extremes. Second, the national carbon market and coal market are the primary sources of risk contagion in the risk spillover network. The former holds a central place in the network and exhibits a strong interaction with mature carbon pilot markets. Third, fluctuations in the energy market and carbon policy events dominate the overall spillover changes, with the former significantly affecting the risk spillover from the energy market, while the latter drives the risk spillover from the national carbon market.

Suggested Citation

  • Tang, Chun & Yang, Guangyi & Liu, Xiaoxing, 2024. "Risk spillover within the carbon-energy system – New evidence considering China's national carbon market," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1227-1240.
    • Handle: RePEc:eee:ecanpo:v:81:y:2024:i:c:p:1227-1240
    DOI: 10.1016/j.eap.2024.02.012
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