Dynamic Interlinkages between Carbon Risk and Volatility of Green and Renewable Energy: A Wavelet Analysis

Our paper applies a time-varying parameter vector autoregression (TVP-VAR) in combining an extended joint connectedness approach to prove interlinkages among carbon emissions futures and the volatility of the renewable energy sector. The findings show that the system-wide dynamic connectedness realizes a peak in early 2020. Net total directional connectedness proves that carbon emissions futures and wind energy play the roles of both net transmitters and net receivers of shocks in the COVID-19 crisis. Crude oil and renewable energy are net transmitters of shocks in the whole sample. The trends of solar energy, green bonds, and natural gas are opposed to those of crude oil. Pairwise connectedness reveals that carbon emissions futures have a role in identifying the volatility of green bonds, clean energy, wind energy, solar energy, and natural gas, particularly during the outbreak of COVID-19 crude oil transmits shocks to carbon prices throughout time.