How do carbon, stock, and renewable energy markets interact: Evidence from Europe

• Published in: Journal of cleaner production Vol. 407; p. 137106
• Main Authors: Qiu, Lixin, Chu, Lijun, Zhou, Ran, Xu, Haitao, Yuan, Sai
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 25.06.2023
• Subjects: Carbon market; Renewable energy market; Stock market; TVP-VAR; TVP-VAR; Stock market; Renewable energy market; Carbon market
• ISSN: 0959-6526; 1879-1786
• DOI: 10.1016/j.jclepro.2023.137106

In a low-carbon context, the connectedness among carbon, stock, and renewable energy markets has been strengthening. This study examines the effect of Brexit, the launch of the European Green Deal and the COVID-19 pandemic on the connectedness among carbon, stock, and renewable energy markets by employing Time Varying Parameter -Vector Auto Regression (TVP-VAR). First, equal interval impulse response analysis shows that in the short term, the renewable energy market suffers from a positive shock from the carbon market and this shock gradually decreases from the initial 1.6×10−3. In the long run, the connectivity between the carbon market and the stock market, and between the carbon market and the renewable energy market is almost 0. Second, we can conclude that the positive connectivity between stock market to carbon market and renewable energy market to carbon market is enhanced by COVID-19 in the short term, with values of 7.5×10−3 and 3.6×10−3 respectively. Finally, renewable energy market received a greater negative impact from the carbon market during COVID-19 than during the release of the European Green Deal, while Brexit allowed positive carbon price spillover to renewable energy price. •The renewable energy market is closely related to the carbon market and the stock market.•The carbon market has a positive impact on the renewable energy market in the short term.•The carbon market had a positive impact on the renewable energy stock market during Brexit.•COVID-19 exacerbates the short-term impact between markets.•The TVP-VAR model addresses the static analytical shortcomings of traditional models.