Dynamic Connectedness Among Energy Prices, Carbon Emission Allowances, and Climate Policy Uncertainty : Evidence from China

This paper applies the DCC-GARCH-VIRF model to examine the connectedness across the climate policy uncertainty, the energy price, and the carbon emission allowance (CEA) price under the unprecedented shocks to the global energy stability like the Russia-Ukraine conflict and the multiple sanctions that followed. Based on energy consumption structure and mainstream media, an energy price and a climate uncertainty (CPU) index for China are formed. The results show that, first, CEA mainly affects energy prices, while CPU remains neutral. Second, unprecedented shocks to the global energy supply can lead to a substantial increase in total connectedness among the three factors