How do carbon markets interact with energy-intensive sectors? Evidence from price connectedness

Yingying Xu and Donald Lien

International Review of Economics & Finance, 2025, vol. 98, issue C

Abstract: Reconciling economic development and emission reductions of polluting gases requires balancing long-term and short-term targets across various markets. As a new production cost, carbon price is expected to affect the supply and demand of energy-intensive sectors. Therefore, within a unified time-frequency framework, this study examines the dynamic connectedness between the largest carbon emission market (i.e., China) and energy-intensive sectors. Based on the daily trading price and trading volume of the national carbon market and eight carbon pilots, this study constructs a monthly China Carbon Market Price Indicator, and then measures the dynamic short- and long-term total and directional connectedness between the carbon market and six energy-intensive sectors. The empirical results show that the total connectedness is strong, particularly in the long-term. Nevertheless, the carbon market does not play an important role in the system, reflecting that China's carbon market is not mature, and the connection with other markets is relatively weak. Generally, the carbon market mainly receives information shocks from energy-intensive sectors rather than transmitting information to them. The carbon market does produce significant impacts on the construction and petroleum industries, particularly since 2021. Policy changes and major events drive changes in the connectedness between carbon markets and energy-intensive sectors. Therefore, balancing industrial developments and stable carbon prices requires refined policy designs accounting for diversified impacts of carbon markets on different sectors.

Keywords: Carbon market; Energy-intensive industry; Carbon price; Connectedness; Carbon cost (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056025000206
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000206

DOI: 10.1016/j.iref.2025.103857

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().