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Examining the interactions of carbon, electricity, and natural gas markets

08/11/2025 Frontiers Journals

This study is led by Dr. Peng Zhou (Institute for Energy Economics and Policy, China University of Petroleum). Weekly price data from European carbon, electricity and natural-gas futures (2012–2022) were analyzed by the team who noticed abrupt regime shifts coinciding with the 2022 Russia–Ukraine war.
The team sought to determine how the war rewired the interaction among Europe’s carbon, electricity, and natural gas markets. They applied a TVP-VAR model to EUA, TTF gas, and Phelix power futures.
The results show that post-war total connectedness among the three markets spiked to 50%, with electricity market’s net spillover surpassing that of nature gas market. “This statistical test confirms the electricity market now commands carbon pricing.” Chu says.
The researchers also applied impulse response functions at one-, two-, and three-week horizons. These reveal before the 2022 Russia-Ukraine war natural-gas shocks pushed carbon prices down in the short run yet up in the medium run; after the invasion, the electricity market produced short-term positive but medium-term negative effects on the carbon market. “Yet some impulse responses reveal that even the shock of war has not weakened natural gas’s predictable influence on electricity prices.” Chu notes.
“These new results add to growing evidence that market structures can persist or invert. They suggest policy makers must prepare for electricity-driven carbon volatility for decades, and we hope this study will encourage regulators worldwide to use new monitoring tools to reveal all the unknown risk channels that energy shocks hold.” Zhou says.
The researchers recommend that regulators monitor power-price volatility as the key driver of medium-term carbon risk and prepare short-term safeguard mechanisms to prevent cascading shocks.

See the article:
Examining the interactions of carbon, electricity, and naturalgas markets
https://link.springer.com/article/10.1007/s42524-025-4077-3
https://journal.hep.com.cn/fem/EN/10.1007/s42524-025-4077-3

https://journal.hep.com.cn/fem/EN/10.1007/s42524-025-4077-3

08/11/2025 Frontiers Journals

Regions: Asia, China, Europe, Russian Federation, Ukraine, United Kingdom

Keywords: Applied science, Engineering

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