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Coordinator: Fondazione Eni Enrico Mattei (FEEM)

Funding entity: European Commission through Horizon Marie Skłodowska-Curie Actions Postdoctoral Fellowships


The EU is now on course to accomplish its 2020 climate and energy targets, and has finalized the regulatory framework required to attain its 2030 and 2050 emissions reduction goals. The EU Emission Trading System (ETS) was established in 2005 with the objective of limiting global warming and maintaining a balance between economic development and environmental protection. Financial, energy, and metal markets are the main driving forces of the prices of the carbon future market. It’s also conceivable that shocks to driving forces have an impact on EUA pricing. As far now, price formation in the ETS, the consequences of structural changes on market linkages, and co-movement between the markets across different trading phases of EU ETS remain widely unexplored. Hence, the goal of this study is to explore the dynamic causal relationship, price spillovers, and dependencies among carbon-energy-metal-stock markets during 2005-2022.

To achieve this objective, it is essential to investigate the stationarity and structural breaks of variables by ADF, PP, KPSS, and ZA tests. To design a network causal relationship, directed acyclic graphs (DAG) as an alternative data-based approach will be used to modeling and analyzing contemporaneous causality patterns. For multi-dimensional analysis, Vine Copulas, including R-Vine, C-Vine, and D-Vine models will be applied. Then, a Time-Varying Parameter VAR model (TVP-VAR) will be applied to discuss the volatility spillover effects. The EUA daily future price from, stock market indices (DAX, FTSE100, CAC40, FTSE MIB, IBEX35, Euro stoxx50, Euro stoxx600, respectively), metal prices (gold, silver, copper), and energy prices for Brent oil, gas, and coal will be utilized for a sample period (2005-2022). Novel outcomes from the study could be explored for four phases of the EU ETS. The study determines whether there are any relationships or volatility spillover effects among the markets. Dependency analysis will quantify the correlations and reveal the impact of energy and financial markets on the carbon market.


  • A contemporaneous relationship exists among markets.
  • We highlight the degree of connectedness between carbon, energy, metal, and also stock prices.
  • Carbon market is the net receiver of shocks from energy, metal, and stock prices.
  • The transmission of volatility varies across different phases of the EU-ETS.

Policy/social impact

These results have the potential to increase the understanding of the EU carbon market and offer practical guidance for policymakers, investors, and companies involved in this domain.