Abstract
Carbon trading and new energy markets are two key mechanisms for carbon reduction. However, theoretical analysis cannot reveal the complex links between carbon, green, and grey markets. Therefore, this study resorts to the frequency spillover index to explore the overall and directional connectedness of carbon-energy systems in China. The spillover effect indicates the cross-market propagation of information shocks and the potential ripple effects of specific shocks on system-wide changes. Dynamic spillovers suggest that the role of a certain market is not unchanged. In the time domain, both the overall and directional spillovers are closely related with the trading of carbon allowances and tend to show jumps at the beginning and end of the cycle. In the frequency domain, the short-term effects are much stronger than the medium- and long-term effects on all dimensions of the spillover effect. Comparatively, the grey energy is the main information transmitter at the high frequency, whereas it is the green energy playing such a role at medium and low frequencies. Comparing the overall spillovers on carbon markets, the effect of grey energy exceeds that of green energy. Even so, the carbon market plays an important role in the carbon-energy system with extremely significant effects on green and grey energy stocks at certain periods. The results provide profound implications for the management of carbon markets and portfolio optimization.