Asymmetric relationship between carbon market and energy markets

Emmanuel Joel Aikins Abakah, David Xuefeng Shao, Aviral Tiwari and Chien-Chiang Lee ()

Energy, 2024, vol. 313, issue C

Abstract: This paper examines the asymmetric returns spillovers and time-frequency causality between the carbon emissions market and the energy market. To this end, we apply the time-varying asymmetry spillovers and Granger causality over the spectrum approaches. This research uses daily price indices of natural gas, gasoline, gas oil, heating oil, crude oil, coal, petroleum, kerosene, propane, and diesel to denote the energy market and the European Union Emissions Trading System (i.e., certificate prices for CO2 emissions) to represent the carbon market. Using historical time-series data from May 18, 2011, to September 23, 2020, the study reveals interesting and convincing empirical results showing that the carbon and energy markets are dynamically and asymmetrically connected. Further results show that the carbon market predominantly explains positive or negative returns in the energy market. Regarding volatility transmission, the study demonstrates that the carbon market is a primary net receiver of good or bad volatility transmitted from the energy market, such as crude oil, petroleum, heating oil, diesel, and kerosene.

Keywords: Energy prices; Carbon dioxide; Energy markets; Dynamic connectedness; Volatility/risk transmission (search for similar items in EconPapers)
JEL-codes: G14 G15 Q47 Q53 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:313:y:2024:i:c:s0360544224034340

DOI: 10.1016/j.energy.2024.133656

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