Connectedness between carbon and sectoral commodity markets: Evidence from China

The carbon market is an efficient mechanism to reduce CO₂ emissions and thus respond to climate change. This work reveals the connectedness and its determinants between carbon and sectoral commodity markets in China. For this purpose, we apply the newly developed quantile-based connectedness measures that allow us to distinguish the relationship between markets under normal and extreme market conditions. The results indicate that: (i) the total spillovers in the carbon-commodity system in both tails are apparently bigger than that at the middle quantile, and are obviously affected by the Russia-Ukraine conflict; (ii) carbon markets receive more information from carbon-intensive commodity markets than from relatively low-carbon commodity markets in both tails; (iii) carbon markets mainly exhibit commodity attributes under normal market conditions, but exhibit commodity and financial attributes under extreme market conditions; and (iv) the spillovers between carbon and commodity markets are more influenced by monetary policy factors in both tails.