Research on the Interrelationship Between Carbon Markets Based on the Method of Wavelet Coherence

In recent years, the excessive use of fossil fuels has led to global warming and a series of environmental crises. Carbon emissions trading, as a market-based mechanism to reduce carbon emissions, has received widespread attention and application. This paper investigates the dynamic dependency and causal interrelationships between Chinese pilot city carbon markets and the European Union Emissions Trading System (EU ETS). Using the wavelet analysis method, this paper empirically examines the data of various cities' carbon markets in China and the EU ETS from June 2014 to February 2023. Significant differences are found in the relationships between Chinese city carbon markets and the EU ETS. The study indicates that, with the exception of Shenzhen, the dynamic interactions between Chinese city carbon markets are weak in the short term but gradually strengthen in the long term. Not all city carbon markets in China have strong correlations, but they are closely related to factors such as local policies, economies, and industrial structures. There is no stable lead-lag relationship among the prices of carbon markets in different Chinese cities. After 2022, there is a trend of positive lag relationship of carbon market prices in Chinese cities (such as Guangdong, Shanghai, Chongqing) with those in the EU ETS. This paper summarizes the relationship between Chinese city carbon markets and the EU ETS and puts forward suggestions for the development of Chinese carbon market construction, including improving institutional systems, strengthening market supervision, promoting technological innovation, and implementing policies to stabilize price fluctuations.