Carbon price–new energy Tango: Causality swings in China

In this study, a rolling-window estimation test is used to examine the dynamic causalities between China's carbon emission price (CEP) and the new energy industry (NEI). According to the results, the CEP affects the NEI in both positive and negative ways over various subperiods. The positive effect of the CEP on the NEI stems from economic slowdowns during external shocks (e.g., the COVID-19 pandemic), whereas funds released from a lower CEP have a negative effect, enabling enterprises to develop new energy. In contrast, the NEI negatively affects the CEP through two channels. A higher cost triggers a decline in the NEI, driving up the CEP, whereas recovery of the NEI suppresses the CEP by reducing fossil fuel demand and emissions. The findings reveal dynamic causalities, enriching the theoretical framework of carbon trading market–new energy industry interactions and offering valuable insights into China's “dual carbon” goals and energy transition strategies. Thus, the following recommendations are proposed for three stakeholders: governments should improve carbon market efficiency, enterprises should transition to low-carbon operations, and research institutes should develop new technologies.