How can carbon markets drive the development of renewable energy sector? Empirical evidence from China

Jiamin Cheng; Yuanying Jiang; Jiamin Cheng; Yuanying Jiang

doi:10.3934/DSFE.2024010

Data Science in Finance and Economics

2024, Volume 4, Issue 2: 249-269. doi: 10.3934/DSFE.2024010

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Research article

How can carbon markets drive the development of renewable energy sector? Empirical evidence from China

Jiamin Cheng ¹,
Yuanying Jiang ^{1,2
,
,}

1.
School of Mathematics and Statistics, Guilin University of Technology, Guilin, 541004, China
2.
Guangxi Colleges and Universities Key Laboratory of Applied Statistics, Guilin, 541004, China

Received: 06 March 2024 Revised: 22 March 2024 Accepted: 10 April 2024 Published: 08 May 2024
JEL Codes: C1, C12, C15, C16, G1, G18

The reduction of carbon emissions has attracted significant global attention. This paper empirically analyzes the dynamic nonlinear linkages among carbon markets, green bonds, clean energy, and electricity markets by constructing DCC-GARCH and TVP-VAR-SV models, and places the four markets under a unified framework to analyze the volatility risk from a time-varying perspective, thereby enriching the research on China's carbon market and renewable energy sector. We found that extreme events have a significant impact on the dynamic connectivity among the four markets. The analysis of the shock impact indicates that the carbon market has a positive effect on the power market in the short and medium terms, but has a mitigating impact in the long term. Especially, when the other markets are hit, the carbon market has evident fluctuation in 2020. The green bond market has a positive influence on the carbon market, whereas the power market demonstrates adverse effects in the short and medium terms. The New Energy Index negatively impacts the power market in the short and medium terms, but is expected to have a positive effect after 2020, highlighting the growing need for renewable energy in the power system transformation. According to the findings mentioned above, we put forward appropriate recommendations.
- carbon market,
- green bonds,
- clean energy,
- electricity market,
- TVP-VAR-SV
Citation: Jiamin Cheng, Yuanying Jiang. How can carbon markets drive the development of renewable energy sector? Empirical evidence from China[J]. Data Science in Finance and Economics, 2024, 4(2): 249-269. doi: 10.3934/DSFE.2024010

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Abstract

The reduction of carbon emissions has attracted significant global attention. This paper empirically analyzes the dynamic nonlinear linkages among carbon markets, green bonds, clean energy, and electricity markets by constructing DCC-GARCH and TVP-VAR-SV models, and places the four markets under a unified framework to analyze the volatility risk from a time-varying perspective, thereby enriching the research on China's carbon market and renewable energy sector. We found that extreme events have a significant impact on the dynamic connectivity among the four markets. The analysis of the shock impact indicates that the carbon market has a positive effect on the power market in the short and medium terms, but has a mitigating impact in the long term. Especially, when the other markets are hit, the carbon market has evident fluctuation in 2020. The green bond market has a positive influence on the carbon market, whereas the power market demonstrates adverse effects in the short and medium terms. The New Energy Index negatively impacts the power market in the short and medium terms, but is expected to have a positive effect after 2020, highlighting the growing need for renewable energy in the power system transformation. According to the findings mentioned above, we put forward appropriate recommendations.

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