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ORIGINAL RESEARCH article

Front. Environ. Sci.
Sec. Environmental Economics and Management
Volume 12 - 2024 | doi: 10.3389/fenvs.2024.1499743

Geopolitical, Economic Risk and the Time-varying Structure of Extreme Risk in the Carbon Emissions Trading Market

Provisionally accepted
Junlong Mi Junlong Mi 1,2Xing Yang Xing Yang 1,2,3*Feifei Huang Feifei Huang 1*Yufa Xu Yufa Xu 1,2*
  • 1 Guangzhou City University of Technology, Guangzhou, China
  • 2 Research Base of Carbon Neutral Finance for Guangdong-Hong Kong-Macao, Guangzhou, China
  • 3 Jinan University, Guangzhou, Guangdong Province, China

The final, formatted version of the article will be published soon.

    Amidst global climate challenges, carbon emission trading has become the most important market-based environmental policy tool, attracting widespread attention for mitigating price volatility caused by extreme risks. This study applies the multivariate multi-quantile conditional autoregressive value-atrisk (MVMQ-CAVIaRX) model to measure extreme market risk and modifies the Diebold Yilmaz (DY) spillover index calculated using the time-varying parameter vector autoregressive model model with exogenous variables (TVP-VARX) to examine the extreme risk structures and its time-varying characteristics of the European carbon emissions trading market. The relevant results are threefold. (1)Significant extreme risk spillover effects exist between the carbon market and the stock, commodity, exchange rate, and interest rate markets, influenced by economic risks and geopolitical risks. (2) In the average extreme risk structure of the carbon market, aside from itself, geopolitical risks contribute the most, followed by the stock and commodity markets, while the contributions of the exchange rate and interest rate are relatively small, with economic risks exerting a slow and steadily increasing influence on extreme risks in the carbon market over the forecast period. (3) The extreme risk structure of the carbon market exhibits significant time-varying characteristics, with contributions from related extreme market risks, geopolitical risks, and economic risks showing significant variations during important periods such as the COVID-19 pandemic and the Russia-Ukraine war. These findings have implications for carbon market policymakers to manage extreme risks.

    Keywords: Carbon emission trading market, extreme risk structure, spillover effects, Geopolitical risk, Economic risks

    Received: 21 Sep 2024; Accepted: 29 Nov 2024.

    Copyright: © 2024 Mi, Yang, Huang and Xu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

    * Correspondence:
    Xing Yang, Guangzhou City University of Technology, Guangzhou, China
    Feifei Huang, Guangzhou City University of Technology, Guangzhou, China
    Yufa Xu, Guangzhou City University of Technology, Guangzhou, China

    Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.