Quantile spillover connectedness among CO2 emission sources: An empirical analysis in European Union

Abstract

Environmental degradation from carbon dioxide (CO2) emissions intensifies climate challenges, damages ecosystems, and threatens biodiversity. Addressing this concern, this study highlights the quantile connectedness among various sources of CO2 emissions: residential, power, transportation, industrial, domestic, and international aviation, focusing on how interconnectedness varies across different quantiles in the European Union (including the UK) from 1st January 2019 to 30th August 2024. The obtained spillover effects reveal a significant total connectedness within the system. Notably, domestic aviation is identified as the leading contributor of spillover shocks to all other sources, demonstrating its pervasive influence across the CO2 emission network. Furthermore, the transmission of return spillovers is more pronounced in the left and right tails of emissions from residential, transportation, industrial, and domestic aviation sectors, indicating increased interconnectedness during periods of extreme market events. The results specifically show that at lower quantiles, transportation (domestic aviation) serves as a contributor (receiver) of spillover shocks, while at the 90th quantile, domestic aviation becomes the sole contributor of shocks to all other variables, and they switch positions. These insights are crucial for policymakers, as they underline the need for targeted and flexible climate policies that take into account the varying roles of emission sources under different conditions of market volatility. Effective mitigation strategies should therefore take into account the dynamic nature of these interdependencies in order to achieve more resilient and sustainable emission reduction targets.