Contagion and network effects of climate policy on stock markets: evidence from carbon-neutral industry chain sectors

This study examines the impact of China’s 2019–2023 climate policies on the stock returns of sectors within the carbon-neutral industry chain. By employing contagion tests and network analysis, we explore how policy shocks propagate from the carbon-neutral sector to its upstream, midstream and downstream sectors. Our analysis also quantifies the importance of climate policy in driving policy shocks and identifies the main driver within the carbon-neutral industry chain. The empirical findings indicate that the 2019 persuasive strategy policy demonstrates the most robust evidence of policy contagion, followed by the 2020 cap-and-trade scheme and the 2022 and 2023 carbon offset mechanisms. In contrast, the regulatory measures exhibit the weakest evidence of policy contagion. Notably, climate policies have a greater impact on upstream sectors, which consist of carbon-intensive industries, compared with the midstream and downstream sectors, which comprise renewable energy sectors.