The dynamic linkages among crude oil price, climate change and carbon price in China

Abstract

Crude oil prices, weather changes, and carbon prices are closely related, but little research investigates their dynamic relationship. Studying how crude oil prices and weather changes dynamically affect carbon prices is significant to investors and producers. Taking carbon prices in Hubei and Guangdong as examples, we use the time-varying parameter vector autoregressive (TVP-VAR) model to investigate the time-varying influence of WTI and weather changes (average temperature, sunshine duration, and precipitation) on China's carbon prices. Our empirical results show that: firstly, the impact of crude oil prices and weather changes on carbon prices is obviously time-varying and lagging. Secondly, the short-term impact of crude oil prices and weather changes on carbon prices is higher than the long-term impact. And crude oil price mainly positively affects carbon prices in the short term. Finally, due to the differences in industrial development and weather conditions between Hubei and Guangdong, there are certain regional differences in the impact of crude oil prices and weather changes on carbon prices. Based on these research results, some suggestions are provided for global sustainable development and green transformation of enterprises.