Dynamic connectedness and volatility spillovers across energy markets

This study examines the dynamic interconnections of fossil fuels (WTI crude oil, natural gas, gasoline, heating oil), clean energy indices (PBW, SPGTCLEN), and carbon emissions futures (CE) between November 2015 and November 2024. By combining of TVP-VAR and DCC-GARCH methodologies, we elucidate return- and volatility-driven spillovers, offering a dual perspective on inter-market connections. The TVP-VAR findings indicate significant and fluctuating return spillovers, with notable surges during the COVID-19 pandemic and the Russia–Ukraine conflict. WTI and heating oil function as enduring transmitters, whereas natural gas and carbon futures are subject to continuous shocks, which is indicative of regional segmentation and policy-driven pricing. Clean energy indices, although time-varying, primarily function as transmitters, highlighting their increasing systemic significance. The DCC-GARCH analysis shows volatility contagion, with WTI as the primary volatility transmitter and PBW as the most susceptible recipient. Robustness assessments across forecast horizons, frequencies, and oil benchmarks validate that these patterns are structural rather than contingent upon the model used. The results provide pragmatic guidance for policymakers and investors: fossil fuels continue to operate as systemic risk transmitters, carbon and clean energy assets require improved liquidity and hedging mechanisms, and energy transition strategies must reconcile financial stability with decarbonization objectives.