Exploring the short-term and long-term linkages between carbon price and influence factors considering COVID-19 impact

Because of global lock-downs caused by the unexpected COVID-19, the interactions between emission trading and related markets have changed significantly compared to the pre-COVID-19 period. Considering the pandemic effect, this paper established an integrated system to identify the relationship trajectories between carbon trading market and impact factors. A noise-assisted multivariate empirical mode decomposition (N-A MEMD) method was utilized to simultaneously decompose the original multi-dimensional time series into intrinsic mode functions (IMFs), after which the Lempel-Ziv (LZ) complexity algorithm was applied to reconstruct the IMFs into high-frequency (HF), low-frequency (LF), and trend modules. Vector autoregression (VAR) and vector error correction (VEC) models were then used to systematically simulate the correlations. The time span was split into pre-COVID-19 and post-COVID-19 periods for comparison, and the mobility trends data during the outbreak period released by the Apple company was chosen to reflect the pandemic effects. The empirical analysis results revealed the energy prices, macroeconomic index, and exchange rate are the main external impact factors of carbon price in the short term. Summarizing from the cointegration models over the long term, the market stability reserve (MSR) mechanism was found to have ability on stabilizing the carbon price under the epidemic shock. Furthermore, the COVID-19 was found to complicate the relationships between carbon price and influence factors, which resulted in fluctuating markets.