Assessing Contagion Risks of Carbon Reduction Policies on the Stock Returns: Evidence from China’s Energy Markets

This study investigates the impacts of China’s carbon mitigation policies spanning from 2011 to 2023 on the stock returns of seven distinct nonrenewable and renewable energy markets. We apply contagion tests, examining variations in linear, asymmetric, and external dependence to identify the transmission of policy shocks from the coal market to energy markets. Among the analyzed carbon reduction policies, both cap-and-trade schemes and coal capacity cut policies present stronger evidence of policy contagion between the coal and energy markets compared to national development plans. Additionally, nonrenewable energy markets demonstrate more pronounced evidence of policy contagion than renewable energy markets during the implementation of carbon reduction plans.