Multifractal Dynamics and Spillover Effects Between China’s Carbon and Energy Markets Under Policy Shocks

Understanding the multifractal dynamics of carbon and energy markets is essential for capturing complex cross-market interactions and policy-induced volatility. This study investigates China’s carbon and energy markets from 16 July 2021 to 30 January 2026, integrating macro policy interventions with nonlinear market evolution. We first employ a Generalized Autoregressive Conditional Heteroskedasticity-Dynamic Conditional Correlation (GARCH-DCC) model with exogenous policy variables to quantify volatility spillovers and dynamic correlations under policy shocks. Then, a rolling-window multifractal detrended cross-correlation analysis (MF-DCCA) is applied to reveal multiscale dependencies, characteristic periods, and complex fractal structures in cross-market linkages. The results indicate: (1) pronounced spillover effects exist among carbon and energy markets, with policy interventions amplifying short-term contagion; (2) policy shocks exert a “green-squeezing” effect, particularly in the coal market, while endogenous volatility structures exhibit long-term resilience; (3) cross-market linkages display multifractal characteristics, with turning points between the carbon market and electricity, new energy, and coal markets at approximately 6.28, 5.58, and 6.96 months, respectively. These findings provide insights for policymakers in designing differentiated energy regulations and for investors in multiscale risk management and asset allocation.