How Carbon Price Shocks Reshape Built-Environment Supply Formation: Evidence from Construction Activity in China

Decarbonizing the built environment depends not only on improving operational efficiency but also on how supply is formed along the construction chain. Carbon pricing may reshape that process through upstream material costs, financing conditions, and project timing, yet evidence on the timing and stability remains limited. This study examines how carbon-price shocks are transmitted to construction activity in China and whether this transmission changed after the launch of the national emissions trading system (ETS) in July 2021. Using monthly data from January 2014 to October 2025, the analysis first applies additive Bayesian network (ABN) structure learning to identify links among carbon-market conditions, material costs, finance, and construction activity and then estimates a time-varying structural vector autoregression (TVP-SVAR) to trace dynamic responses across regimes. The results show that carbon-price shocks mainly depress housing starts and area under construction at medium horizons, especially around 6–12 months, with stronger contraction around the 2021 transition and easing later. Allowance trading volume responds positively on impact, but this sensitivity weakens in the post-2021 period. Forecast error variance decompositions further show that carbon-price shocks become an important source of medium- and long-horizon fluctuations. At the 12-month horizon, they account for 18.7% and 18.4% of the forecast-error variance of housing starts in the pre- and post-2021 regimes, and 13.7% and 10.8% of that of trading volume. Overall, the findings point to a project-cycle channel through which carbon pricing reshapes built-environment supply formation, with implications for procurement, transition finance, and the evaluation of carbon-market effectiveness in construction.