A0784
Title: The impact of COVID-19 pandemic shock on the correlation between energy markets and EU ETS
Authors: Hao Wang - Jilin University (China) [presenting]
Runfan Chen - Jilin University (China)
Abstract: The COVID19 pandemic has created significant shocks in the energy market and carbon emissions. We study the change of correlations between energy markets and EU ETS to investigate the possible implications of the pandemic. The Vine Copula is employed to research the static correlations, and the rolling approach is adopted to study the dynamic nonlinear tail dependence. We found that the high-dimensional correlation structures remain the same, while the correlation has been reinforced after the epidemic. The gas market has the strongest direct correlation with EU ETS, followed by the relationship between EU ETS and the oil market. On the other hand, upper tail dependence is stronger than the lower one. And the probability of upper tail risks in EU ETS brought by the gas market is highest, which happened mostly after the pandemic. After the COVID19 pandemic, the correlations between EU ETS and energy markets have been strengthened, especially the correlation and upper tail dependence between EU ETS and the gas market. And the energy structure is the radical cause of this divergence. Our findings suggest that energy price risk, particularly the extreme price risk of gas, has become an impediment to Europe's transition to a low-carbon economy.
