Does climate policy uncertainty drive the extreme spillovers of carbon-energy-shipping markets?

• Published in: Journal of environmental management 2024-08, Vol.366, p.121737, Article 121737
• Main Authors: Chen, Yanhui, Feng, Ailing, Mi, Jackson Jinhong
• Format: Article
• Language: English
• Subjects: Carbon; Carbon markets; Climate Change; Climate policy uncertainty; Crude oil markets; energy; environmental management; environmental policy; Extreme spillover; industry; information exchange; Models, Theoretical; Network estimation; petroleum; Shipping markets; Uncertainty; United Nations Framework Convention on Climate Change
• ISSN: 0301-4797; 1095-8630; 1095-8630
• DOI: 10.1016/j.jenvman.2024.121737

In addressing the ramifications of climate change, the shipping industry, reliant on energy, has been integrated into the Emissions Trading System (ETS). This study utilizes the quantile connectedness model to investigate the information spillover mechanisms and extreme time-varying interconnections among carbon, energy, and shipping markets. Whether climate policy uncertainty drives the extreme interconnections is also discussed during both pre- and post-Paris Agreement periods, by using GARCH-MIDAS model. The empirical findings underscore the following key points: (i) the systemic connectedness is highly sensitive to market conditions and major events, increasing significantly under extreme market conditions; (ii) following the implementation of the Paris Agreement, an elevated level of informational interdependence has manifested between the carbon market and the energy and shipping sectors; (iii) the information transfer mechanism between carbon and shipping sectors creates direct and indirect spillover paths, with crude oil market mediating the indirect path; (iv) climate policy uncertainty greatly affects the extreme time-varying interconnections, and this impact has decreased after the Paris Agreement came into effect. These results offer valuable insights for market policymakers and shipping companies in achieving a balance between carbon emission reduction and shipping business, particularly amidst heightened climate policy uncertainty. •Carbon-energy-shipping spillovers vary with market conditions and major events.•Post-Paris Agreement, increased information interdependence emerged.•The spillovers between carbon and shipping markets create direct and indirect paths.•Climate policy uncertainty greatly affects the extreme interconnections.•The impact from climate policy uncertainty has diminished post-Paris Agreement.