Abstract
The power sector is one of the major contributors to China’s carbon emissions, and its low-carbon transformation is of vital importance to China’s long-term sustainable development. This paper aims to investigate the spillover effect between the carbon emission trading (CET) market and power sector in China from a systematic perspective. We adopted the recently developed method of connectedness network and rolling window approach, and found that: (i) during our sample period, the total static spillover index and the average of total dynamic spillover indexes were 60.5735% and 57.9704%, respectively, and the spillover effect of this carbon-power system was relatively strong; (ii) there is weak bidirectional spillover effect between the CET market and the power sector, and the CET market is a net receiver of the information from the power sector; (iii) the CET market may exert a relatively high degree of impact on the power sector occasionally; (iv) for regulated power companies, their interactions with the carbon-power system may be related to its total holding installed capacity and the proportion of renewable energy installed. This study provides implications for policymakers, company managers, and market participants.
Highlights
Since the Industrial Revolution, humans have begun to develop and use resources on a large scale, which has led to a sharp increase in greenhouse gas emissions
Most of the carbon price returns fluctuate in the range of (−150, 150), while the stock price returns of power companies mostly fluctuate in the range of (−10, 10)
The enterprises with very high, high, and medium levels of renewable energy holding installed ratios were information transmitters, while the renewable energy installed ratios of information receivers were at a low or very low level. This finding indicates that the stock price returns of power enterprises with a higher proportion of renewable energy installed are less likely to be affected by carbon price returns and stock price returns of other enterprises, and, they are less likely to be exposed to uncertainty in the carbon-power system
Summary
Since the Industrial Revolution, humans have begun to develop and use resources on a large scale, which has led to a sharp increase in greenhouse gas emissions. In order to effectively achieve emission reduction targets and optimize the energy consumption structure, the power industry is selected as one of the main industries covered in China’s CET pilot markets Under this circumstance, it is of great importance to examine the interactions between the power sector and the CET market in China. To fill the research gap, this paper aims to examine the linkages and spillover effect between the CET market and power sector in China from a systematic perspective For this purpose, a connectedness network of this carbon-power system is constructed. 2. The existing research on the interactions between the CET market and power sector is mainly at the industry level, while this paper measures the connectedness between these two markets both at the industry level and company level with the connectedness network method.
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