Yingying Xu ^1* Yinglun Zhu ^2*

• ¹ Business School, Wuchang University of Technology, Wuhan, Hubei, China
• ² School of international economics, China Foreign Affairs University, Beijing, Beijing Municipality, China

Reconciling economic development and emission reduction of polluting gases requires balancing long-term and short-term goals across various markets. As a new production cost, the price of carbon allowances is assumed to affect the supply and demand of carbon-intensive sectors. Therefore, this study examines the dynamic price spillover effects between China as the largest carbon emission market and the carbon-intensive building materials industry in a unified time-frequency framework. This study measures the dynamic overall and directional spillover effects of carbon and building materials markets in three frequency bands, considering eight carbon pilots and the national carbon market in China and four important building materials. The empirical results show that the bi-directional spillover between carbon and the building materials market shows pronounced characteristics in the time-frequency domain, especially in the short-term frequency band of one day to one week, with strong connectivity. Compliance cycles in carbon markets are likely to induce sharp fluctuations in spillovers between the two markets. After the launch of the national carbon market, the information spillover from the building materials market to the carbon pilots become stronger. Both the carbon pilots and the national carbon market have significant short- and long-term impacts on the building materials market. In addition, there are differences in the impact of carbon markets on various types of carbon intensive building materials. Therefore, balancing industrial development and stabilizing carbon prices requires a refined policy design that considers the diversified impacts of carbon markets on different industries at across frequencies.