The Dynamic Spillover Between Carbon And Energy Markets

As carbon trading develops rapidly around the world,researching the linkage between carbon and energy markets is becoming a hot topic.This paper starts from constructing asymmetric BEKK-GARCH model and tests the information flow between carbon emission and natural gas,WTI crude oil and Brent oil in a qualitative way.Then,using the method proposed by Diebold and Yilmaz,we studied the interaction between the carbon and the energy markets in a quantitative way.The results show that there exists an asymmetric spillover between the two markets in yield and market volatility.Brent oil and WTI crude oil convey a strong return spillover to the carbon market,but there is almost no obvious volatility spillover effect.In the event of extreme economic shocks,the natural gas market can significantly increase the spillover effect on carbon market,and the volatility spillover generated by the crude oil market is also strengthened.The rolling window technique is then used to detect time-varying effects in the spillover effect.The results show that some major phase adjustments and negative events in the carbon market may lead to changes in the spillover index,reducing the spillover that carbon market receives or produces.On the other hand,large fluctuations in the crude oil market price can always increase the outputting return spillover,but the volatility spillover effect remains relatively stable.These time-varying linkages and quantitative spillover analysis can provide investors with a reference for optimizing their asset allocation,setting hedging strategies,and guide industrial companies to strike a balance between energy consumption and carbon reduction,even facilitating regulators to effectively assess the development of the carbon market.