Evaluation of European Union carbon and energy networks: Evidence from market efficiency

Xiaohang Ren, Yiying Li, Kun Duan and Tapas Mishra

Energy & Environment, 2025, vol. 36, issue 1, 231-254

Abstract: This article investigates dynamic networks of the informational efficiency between European Union carbon and energy markets in a quantile-based framework. The market (in)efficiency degree is gauged by capturing the potentially fractional integration order of the market price series using the Feasible Exact Local Whittle estimator on a rolling basis. Rather than relying on a mean-based method, we employ the causality-in-quantiles approach, through which the cross-market linkage of the inefficiency degree is uncovered in a full-distributional characterization. The dynamic linkage is identified through the perspectives of data in return and volatility, respectively. We find that both carbon and energy markets are inefficient, while the inefficiency degree of the former is slightly higher. The inefficiency degree of the two types of markets is featured by asymmetry and non-linearity over the data distribution, while its cross-market linkage is found to be bi-directional. The spillover degree of the dynamic linkage remains the highest at around the median quantile of the “information giver,†while such the degree weakens at the extreme quantiles. Our findings possess insightful implications for effective operations of the emission trading toward a low carbon transition.

Keywords: Market efficiency; European Union emission trading scheme; energy market; network; causality-in-quantiles (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:engenv:v:36:y:2025:i:1:p:231-254

DOI: 10.1177/0958305X231156411

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