Time-varying, frequency-domain, and quantile spillovers across energy and financial markets under climate policy uncertainty: evidence from TVP-VAR-SV, BK, and QVAR models

The study explores how much area is influenced by climate policy uncertainty (CPU), which adjusts the dynamics of volatility and cross-market spillovers among European electricity, energy commodities, carbon markets, and financial assets, thereby explaining the mechanisms affected by the existing sustainability transition. Using high-frequency market data, we combine an econometric architecture linking a time-varying parameter VAR to stochastic volatility, Barunik–Krehlik frequency-domain connectedness, and quantile-VAR methods, thereby enabling the capture of horizon-specific and regime-dependent risk transmission. The discussion shows that the CPU is a structural amplifying agent of market interconnectedness, which has its most substantial impacts in long-horizon and downside regimes. Electricity, oil, and gas are the primary sources of short-run spillovers in response to antecedent physical energy shocks, whereas medium-horizon spillovers are increasingly driven by carbon and equity markets as investors respond to evolving policy and transition expectations. On the other hand, during upside regimes, reconfiguration occurs as speculative instruments, especially cryptocurrencies, take over the role of net transmitters of financial exuberance into energy and carbon markets. The results of hedging assessments with DCC-GARCH and GAS-copoda models indicate that dynamic, state-sensitive strategies have greater advantages than a static hedge, particularly in an environment characterized by increased CPU.