From Policy to Prices: How Carbon Markets Transmit Shocks Across Energy and Labor Systems

Cristiana Tudor, Aura Girlovan (), Robert Sova, Javier Sierra and Georgiana Roxana Stancu
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Cristiana Tudor: Department of International Business and Economics, Faculty of International Business and Economics, Bucharest University of Economic Studies, Romana Square 6, 010374 Bucharest, Romania
Aura Girlovan: Department of International Business and Economics, Faculty of International Business and Economics, Bucharest University of Economic Studies, Romana Square 6, 010374 Bucharest, Romania
Robert Sova: Department of Management Information Systems, Faculty of Accounting and Management Information Systems, Bucharest University of Economic Studies, Romana Square 6, 010374 Bucharest, Romania
Javier Sierra: Department of Applied Economics, Multidisciplinary Enterprise Institute (IME), Faculty of Law, University of Salamanca, Paseo Tomas y Valiente, 37008 Salamanca, Spain
Georgiana Roxana Stancu: Department of International Business and Economics, Faculty of International Business and Economics, Bucharest University of Economic Studies, Romana Square 6, 010374 Bucharest, Romania

Energies, 2025, vol. 18, issue 15, 1-28

Abstract: This paper examines the changing role of emissions trading systems (ETSs) within the macro-financial framework of energy markets, emphasizing price dynamics and systemic spillovers. Utilizing monthly data from seven ETS jurisdictions spanning January 2021 to December 2024 (N = 287 observations after log transformation and first differencing), which includes four auction-based markets (United States, Canada, United Kingdom, South Korea), two secondary markets (China, New Zealand), and a government-set fixed-price scheme (Germany), this research estimates a panel vector autoregression (PVAR) employing a Common Correlated Effects (CCE) model and augments it with machine learning analysis utilizing XGBoost and explainable AI methodologies. The PVAR-CEE reveals numerous unexpected findings related to carbon markets: ETS returns exhibit persistence with an autoregressive coefficient of −0.137 after a four-month lag, while increasing inflation results in rising ETS after the same period. Furthermore, ETSs generate spillover effects in the real economy, as elevated ETSs today forecast a 0.125-point reduction in unemployment one month later and a 0.0173 increase in inflation after two months. Impulse response analysis indicates that exogenous shocks, including Brent oil prices, policy uncertainty, and financial volatility, are swiftly assimilated by ETS pricing, with effects dissipating completely within three to eight months. XGBoost models ascertain that policy uncertainty and Brent oil prices are the most significant predictors of one-month-ahead ETSs, whereas ESG factors are relevant only beyond certain thresholds and in conditions of low policy uncertainty. These findings establish ETS markets as dynamic transmitters of macroeconomic signals, influencing energy management, labor changes, and sustainable finance under carbon pricing frameworks.

Keywords: emissions trading system (ETS); carbon market dynamics; carbon pricing policy; energy price shocks; panel vector autoregression (PVAR); explainable artificial intelligence (XAI); environmental; social and governance (ESG); economic policy uncertainty (EPU); energy management systems (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
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