The Impact of the covid-19 pandemic on the dynamic dependence structure of the China’s carbon market and energy market

Abstract

This study analyzes the dependence structure between China’s carbon and energy markets before and after the COVID-19 pandemic by dividing the data into Regime 1 and Regime 2. Hubei and Guangdong carbon pilots represent China’s carbon market, while coal, crude oil, and new energy represent China’s energy market. The log return series are estimated by the ARMA-GARCH-GED model and copulas. Firstly, according to the Akaike information criterion, it is known that the Clayton copula has the worst performance. Our findings suggest that the dependence structure is symmetric except for the Guangdong carbon pilot and the crude oil market. Secondly, it turns out that the dependence structure changes in different regimes by comparing the copula parameters and symbols in the two regimes. For the Guangdong carbon pilot, the coefficient between it and the new energy market changes from -0.16 to 0.01. Regarding the Hubei carbon pilot, the dependence between it and the coal market is most affected. The empirical results provide helpful strategies for policymakers, enterprises, and investors with portfolios and decisions.