Research on Price Transmission Mechanism of China Carbon Market and EU Carbon Market

DOI: https://doi.org/10.62517/jse.202611104

Author(s)

Su Wang*

Affiliation(s)

YINGDA INTERNATIONAL TRUST CO., LTD., Beijing, China * Corresponding Author

Abstract

In the background of continuous evolution in global carbon markets, the influence exerted by international market price fluctuations on the formation mechanism of China's domestic carbon pricing system has emerged as particularly pivotal for investors engaged in rational decision-making and risk mitigation. Leveraging daily transaction data from international carbon futures and domestic carbon allowances spanning from July 2021 to the end of 2024, this study constructs a Vector Autoregression (VAR) model to systematically investigate the dynamic interrelationships between global and domestic carbon market prices. Through comprehensive methodologies including Granger causality tests, impulse response analysis, and variance decomposition, the empirical analysis reveals two key findings: (1) China's carbon emission prices exhibit a unidirectional causal relationship with the European Union Allowance (EUA) prices, and (2) the international carbon futures market demonstrates a relatively weak and asymmetric influence on China's domestic carbon market, characterized by non-symmetrical dependency patterns. These discoveries underscore the strategic importance of domestic strategy frameworks and market mechanisms in shaping China's carbon pricing dynamics amid global market interconnections.

Keywords

Carbon Price; EU Carbon Market; Price Transmission Mechanism; VAR Model

References

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