Does geopolitical risk matter in carbon and crude oil markets from a multi-timescale perspective?

The ongoing Russia-Ukraine conflict serves as a prime illustration of geopolitical risk, manifesting implications beyond global energy price surges and regional energy deficits; it also resonates within the carbon trading market. This study delves into the non-linear and asymmetric impacts of geopolitical risk on oil-carbon linkages spanning 2013 to 2022. Commencing with an exploration of dynamic correlations within the carbon and crude oil markets, our findings indicate that market movements in carbon or crude oil are subject not only to their respective historical volatility trends but also to reciprocal influences from the alternate market, highlighting the existence of asymmetric spillovers between the carbon and crude oil markets. Subsequently, a threshold vector error correction model (TVECM) sheds light on the long-term transmission dynamics of geopolitical risk to oil-carbon linkages. It is concluded that the oil-carbon linkages have a limited impact on geopolitical risk and are subject to shocks from geopolitical risk. Finally, the maximum overlap discrete wavelet transform (MODWT) method unveils heterogeneity across temporal scales: in the short term, geopolitical risk fluctuations are influenced by oil-carbon linkages, and in the middle and long run it becomes independent. Such insights furnish investors with an enriched comprehension of the interplay between crude oil and carbon markets amid geopolitical disturbances, while also offering policymakers a foundation upon which to sculpt informed responses to geopolitical risk.