Spillover Effects among Electricity Prices, Traditional Energy Prices and Carbon Market under Climate Risk

Abstract

With the increase in global geopolitical risks and the frequent occurrence of extreme climate in recent years, the electricity prices in Europe have shown large fluctuations. Electricity price has an important impact on the cost of production and living, while electricity demand will also affect other energy markets. A double-layer system based on the spillover effects from a systematic perspective is constructed in this paper to explore the connectedness between different electricity markets and other related energy markets in Europe, considering the impact of climate risks. The results show that there are certain spillover effects among electricity markets in different countries, with a temporary upward trend in the beginning of the Russia–Ukraine conflict, and the electricity markets in the UK and Germany have a more important role in Europe. There are two-way spillover effects between the electricity market and fossil fuel markets, carbon market and carbon emission. Since 2022, the electricity market is affected by gas prices, while it has a certain impact on carbon emissions. The heating degree day (HDD) has significant spillover effects on the electricity market and other energy markets, while the spillover effects of the cooling degree day (CDD) are relatively small.

Connectedness of Carbon Price and Energy Price under Shocks: A Study Based on Positive and Negative Price Volatility

“…Further, they found that the risk spillover among the three is higher in the state of high volatility frequency, and geopolitical events will drive the increase of network correlation. Liu et al (2023) [25] Construct a two-tier spillover network of the electricity market, traditional energy market and carbon market in European countries to explore the impact of climate risk on network structure and nodes. They found that there are two-way spillovers between markets and that extreme events such as the Russia-Ukraine conflict can have an impact on network structure.…”

Quantitative Assessment of the Impact of Extreme Events on Electricity Consumption

“…In recent years, Europe has become an important region for global electricity consumption, accounting for 20% of the world's total electricity consumption. However, the European region has been affected by various extreme events such as heatwaves, the Russia-Ukraine conflict, and the COVID-19 pandemic, which have had varying degrees of impact on the electricity market and consumption behavior [20,[37][38][39][40][41]. In particular, in 2022, electricity prices in Europe more than doubled, maintaining a leading position in global electricity price increases [42].…”