Complex causalities between the carbon market and the stock markets for energy intensive industries in China

The low-carbon development of energy intensive industries is of vital importance to achieve China's energy and climate targets in 2030 while carbon market is an important mechanism to promote carbon reduction. This paper investigates three types of causality, including positive, negative and dark causality, between China carbon prices and four energy intensive stock indexes using Pattern Causality method from a nonlinear symbolic dynamic perspective. Our findings show that there exists weak bidirectional causality between these two markets, which is manifested in that the fluctuation of 1% in one market approximately cause the fluctuation of 0.15%–0.3% in the other market. Moreover, we further analysis the impact of policies on the causalities between these two markets by dividing the whole timescale into seven stages. The results indicated that the document announcing the formal launch of China's carbon trading system prompted the dominant market of their causality shifting from carbon market to stock markets. Carbon markets gradually show stronger causal influence on the stock markets before December 2017, and the opposite after April 2018. And the Covid-19 has further exacerbated the weakening role of the carbon finance. Finally, the delay effect of carbon market on power industry stock market can be identified when unveiling the dark causality type.