Biodiversity as a Financial Determinant of Carbon Market Uncertainty: The Interplay of Oil Shocks, Green Finance, and Artificial Intelligence

ABSTRACT This study examines the determinants of carbon market uncertainty within a unified energy–finance–environment framework, with particular emphasis on the role of biodiversity, oil market shocks, green finance, and artificial intelligence (AI). Against the backdrop of recent global crises, including the COVID‐19 pandemic, the Russia–Ukraine conflict, and escalating geopolitical tensions in energy markets, oil price volatility has emerged as a key driver of instability in carbon pricing systems. The results reveal that biodiversity exerts a nonlinear, inverted‐U‐shaped effect on carbon market uncertainty, acting as a stabilizing force at both low, and high levels while generating transitional volatility at intermediate levels. Green bonds and AI exhibit state‐contingent effects, contributing to market stability under normal conditions but showing weaker, pro‐cyclical behavior during periods of stress. In contrast, oil price dynamics consistently amplify carbon market uncertainty, particularly under extreme conditions, confirming the dominant role of fossil fuel markets in shaping carbon risk. These findings highlight the need to consider the joint interaction of ecological factors, technological innovation, and energy market dynamics when assessing carbon market stability. The study contributes to the literature by introducing biodiversity as a financial determinant of carbon volatility and by demonstrating that the effectiveness of sustainable finance instruments depends critically on oil‐driven market conditions. Policy implications emphasize the importance of integrating biodiversity finance, stabilizing green investment flows, and reducing exposure to fossil fuel shocks to enhance the resilience of carbon markets.