Research On The Spillover Effect Of Cross-border Carbon Market Network And The Impact Of Economic Policy Uncertaint

Climate change,characterized by global warming,is one of the most daunting challenges exposed to the contemporary world.The signing of the Kyoto Protocol creatively adopted a market mechanism and introduced carbon emission rights as a tradable commodity,which erected a bridge to the solution of this issue.In addition,the26 th United Nations Climate Change Conference initially established the fundamental institutional framework of the global carbon market,aiming to foster carbon allowance trading among different regional carbon markets.As a result,the cooperation among global carbon markets is deepening,and the cross-border flow of carbon emission rights and spillover effects are becoming increasingly evident.Essentially,the carbon market is a policy-driven market.In extreme circumstances,its price volatility and sensitivity to policy changes exceed those of more conventional financial markets.And with the financial liberalization and integration,triggering the cross-country risk resonance and contagion effects in the carbon market.In light of this,this paper systematically explores the spillover effects between China’s major carbon trading pilot markets and the EU carbon trading system,focusing primarily on the spillover effects of cross-country carbon market networks as the main line of research.Firstly,the Quantile-VAR method is used to construct the analysis network by combining the spillover index,to examine the stage and structural change characteristics of the spillover network under different market states from static and dynamic perspectives.On this basis,this paper incorporated the economic policy uncertainty indices of the countries or regions where the carbon markets are located(China and the EU)and the world’s largest economy(the US)into the research framework,to characterize the internal and external economic policy uncertainties faced by this crosscountry spillover network.The TVP-VAR model is applied to further explore the impact of internal and external economic policy uncertainty shocks on the cross-country carbon market spillover network.The empirical results are as follows: first,the level of total spillover risks among carbon trading markets varies from different quartiles.The total spillover index reveals a U-shaped structure,with its intensity increases correspondingly to the shock size.Second,by selecting the conditional median(0.5 quantile)and the extreme conditional quantile(0.1 and 0.9 quantile)to construct a static spillover network,the results indicate that the direction and intensity of spillovers in the carbon market vary across quartiles,and the internal structural spillover is always higher than the inter-market contagion.The risk spillover effect among Chinese carbon pilot markets varies significantly and mainly occurs in the tail of the distribution of carbon market conditions,while the European carbon market is relatively stable and the primary source of extreme risk spillover.Third,the dynamic analysis reveals that spillover effects exhibit significant time-varying characteristics throughout the research period.The overall level of the total spillover index swings greatly,and it tends to be high around the period of major international economic policy uncertainty events.Fourth,stable economic market conditions play the role of a "firewall",and the cross-country carbon market network in such state can effectively withstand the impact of economic policy uncertainty shocks.Moreover,in terms of the sources of economic policy uncertainty,the effects of internal economic policy uncertainty are more significant than that of external economic policy uncertainty.The purpose of this paper is to investigate the cross-country spillover effects between the carbon trading markets,and the impact of internal and external economic policy uncertainty shocks on their spillover networks.It is imperative for the relevant government regulatory authorities to establish a corresponding risk warning mechanism,and to promote the stable and prosperous development of China’s carbon market.