What drive carbon price dynamics in China?

This paper examines the driving factors of China carbon price in a systemic way with quantitative analysis. Specifically, three categories of driving forces as macro economy risk and uncertainty, energy and environment factors are selected to investigate their impacts on carbon price in China, by adopting the dynamic connectedness measurement approach. The empirical results confirm each driving factor has made contributions to the carbon price fluctuations, and the dynamic interactions among them have enhanced connectedness of the whole system. However, the directional dynamic spillovers indicate main driving factors to carbon price are heterogeneous varying over the whole sample and in different carbon markets. Most importantly, market sentiment plays main role in the carbon price dynamics of Guangdong market, whereas the electric power index makes great effects to Hubei carbon price changes, and the carbon price fluctuations in Shenzhen market are largely caused by air quality situation.

Automated summary

This study systematically examines the driving factors of China's carbon price using quantitative analysis, finding that macroeconomic risks, energy, and environmental factors all influence carbon price fluctuations. Market sentiment plays a key role in the Guangdong carbon market, while the electric power index has significant effects on changes in Hubei carbon prices, and air quality situations largely drive carbon price fluctuations in the Shenzhen market.