Abstract
We investigate volatility spillovers from West Texas Intermediate (WTI) crude oil to carbon emission allowance futures, focusing on the period surrounding the WTI negative pricing event of April 2020. Results evidence, pre-negative WTI, a doubling of directional spillover from WTI oil to carbon allowance futures upon the global spread of COVID-19, with a sharp elevation of directional spillover from WTI oil to carbon allowances during the specific period of negative WTI. This extraordinary rise in directional spillover continued past the near-term contract through several ensuing contracts. Results suggest that carbon futures markets are highly sensitive to periods of fragility.
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