The co-movement of fossil energy, new energy, rare earth, and carbon in China: Measurement and evolution analysis

Abstract

The low-carbon transition of the energy system plays a crucial role in achieving carbon neutrality. However, the development of new energy heavily relies on rare earth resources, which in turn entail substantial energy consumption and carbon emissions. This “linkage dilemma” poses constraints on the realization of carbon neutrality objectives. In this study, we employ a combination of sample entropy, cross-sample entropy, and coarse-gained network modeling methods to uncover the internal complexity and mutual synchronization of the fossil energy stock market, new energy stock market, rare earth stock market, and carbon market in China. Our findings reveal several important insights. Firstly, we observe that the co-movements among the three industry stock markets and the carbon market are dynamic and closely tied to the efficiency of each market. Secondly, the co-movement between traditional and new energy stock markets remains high, with the supply chain stock market between energy and rare earth exhibiting a similar trend. This highlights the significant impact of inherent substitution or supply chain relationships on the level of synchronization. Thirdly, the stock market crashes and the COVID-19 pandemic have resulted in heterogeneous effects with notable changes observed in carbon-related market pairs. Notably, although the carbon market exhibits relatively low co-movement with other stock markets, the patterns of co-movement and their evolution are becoming increasingly complex. Lastly, based on our findings, we present conclusions and potential implications for policymakers to address the impact of the crisis on market interconnectivity, as well as guide investors to effectively allocate their investment portfolios.