Contagion risks of air pollution control policies on the China energy stock returns

Given the urgent challenge of extreme climate change and global warming, it is crucial to investigate how air pollution control policies can reduce carbon emissions. This paper analyzes the impact of China's air pollution control policies (2013-2024) on energy markets. Using the individual and multiple-dependence contagion tests, along with a policy announcement sensitivity index and network analysis, the study quantifies the intensity and direction of risk transmission within energy sectors. The results show that, among the four policy types, market-based environmental regulations exhibit the strongest contagion effects, followed closely by transportation emission controls, while national development plans and energy structure adjustments have the weakest influence. Among the 12 energy segments, photovoltaic power is the most susceptible to policy disruptions, followed by wind and fuel cells, with the coal sector showing the least vulnerability. Network analysis reveals that market-based environmental policies are the most systemically connected, followed by transportation controls, whereas the other two policy types exhibit limited contagion potential.