Asymmetric dependence structures between emission allowances and energy markets: new evidence from China's emissions trading scheme pilots.

This article investigates the dependence structure between China's emissions allowances and energy (coal, oil, and natural gas) markets using autoregressive conditional heteroskedasticity (GARCH) and mixed Copula functions. The dependence structures between China's eight emissions allowances and energy markets demonstrate significant regional heterogeneity; an increase (decrease) in coal, crude oil, and natural gas prices induces an increase (decrease) in eight regional emissions allowance prices and confirms regional divergence and market heterogeneity. The Beijing, Guangdong, Hubei, and Chongqing emissions allowances and coal markets demonstrate significant left-tail dependence structures, while the Shanghai, Tianjin, Shenzhen, and Fujian emissions allowances and coal markets demonstrate complex mixed dependence structures. Seven of China's emissions allowances and crude oil markets confirm the existence of complex asymmetric dependence structures, except for the symmetric dependence structure between the Fujian emissions allowances and crude oil markets. However, eight of China's emissions allowances and natural gas markets demonstrate complex asymmetric dependence structures.