How do climate risks impact the contagion in China's energy market?

Kun Guo, Yuxin Kang, Dandan Ma and Lei Lei

Energy Economics, 2024, vol. 133, issue C

Abstract: Energy security is a critical facet of national security, especially in energy-importing countries, and significant fluctuations in the energy market can profoundly influence the real economy. With the intensification of global climate change, extreme weather events and diverse energy transition policies emerge as prominent risk factors driving energy market volatility. In this study, we employed a time-varying parameter vector autoregression (TVP-VAR) model and the spillover index method of generalized variance decomposition to assess the endogenous contagion and exogenous shock risk of China's energy prices and the systematic risk in the broader energy market. Our analysis included the coal, oil, and natural gas prices in both Chinese and international markets. The results indicate that the international oil market plays a dominant role in the energy risk spillover network, with the exogenous shock risk in China's energy market surpassing the endogenous contagion risk. Further, quantile models were used to investigate the impact of climate risks, namely climate disasters, climate policy uncertainty, and climate risk concern. We found that in high-risk environments, all climatic factors exert pronounced impacts on China's energy market risks, with climate risk concern being especially influential. Overall, this study has important policy implications for energy security and adaptation to climate change.

Keywords: Climate risk; Risk spillover; Energy security; TVP-VAR; Quantile model (search for similar items in EconPapers)
JEL-codes: Q02 Q41 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:133:y:2024:i:c:s0140988324001580

DOI: 10.1016/j.eneco.2024.107450

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