Unpacking the Link: Carbon Markets and Oil Prices in China

Ever wondered how China’s carbon market and crude oil prices bounce off each other? Research shows they’re closely tied. The study used a method called Maximal Overlap Discrete Wavelet Transform (MODWT) to break down price movements into different scales. This helped scientists see how risk flows between the two markets. China’s carbon market is still growing, and it’s driven by rules more than trading. Oil prices, on the other hand, jump around a lot, often due to long-term factors. When looking at time, the markets influence each other strongly, especially on scales like D1 to D4. In simpler terms, short-term changes in one market often mean changes in the other.When it comes to how much prices vary, both markets have similar patterns at scales D3 to D4. This means price swings in one market can trigger swings in the other. So, what’s the takeaway? Improve the carbon market’s trading volume to make it smoother. Also, enhance risk monitoring and early warning systems. Companies should keep an eye on both markets and make smart investment decisions.