Spillover effects between China's new energy and carbon markets and international crude oil market: A look at the impact of extreme events

Yong Zhang, GuangYuan Tang and Rong Li

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

Abstract: Extreme events can significantly affect the inter-market risk spillover effect. This study employs the Time-Varying Parameter - Vector Autoregression - Stochastic Volatility (TVP-VAR-SV) model, combined with impulse response functions, Diebold-Yilmaz (DY) spillover models, and complex network analysis methods, to investigate the spillover effects and dynamic characteristics of China's new energy sector, carbon market, and international oil markets in the context of COVID-19 and the Russia-Ukraine conflict. The results reveal the following key findings: (1) The spillover effects between the three markets exhibit significant time-varying and asymmetric characteristics; (2) Both the COVID-19 pandemic and the Russia-Ukraine conflict have notably intensified the shock effects between China's new energy sector, carbon market, and international oil, with these effects peaking in the first period after the shock and gradually diminishing thereafter; (3) The new energy market in China transitioned from being a receiver of spillover effects in the pre-COVID-19 system to becoming a sender post-COVID-19, while international oil and China's carbon market became the receivers of volatility spillovers. However, after the outbreak of the Russia-Ukraine conflict, international oil and China's carbon market shifted to being the senders of volatility spillovers, and the Chinese new energy market became the receiver. This research provides valuable insights into the interactions between energy and carbon trading markets and offers important policy implications for achieving emission reduction targets and advancing the low-carbon transformation of energy systems.

Keywords: Carbon market; WTI crude oil futures; Volatility spillover effect; DY spillover index; TVP-VAR-SV model (search for similar items in EconPapers)
JEL-codes: G15 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025001029

DOI: 10.1016/j.iref.2025.103939

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