CARBON CREDIT TRADING AND CAPITAL MARKET EFFICIENCY: A SYSTEMATIC LITERATURE REVIEW

Authors

  • Ardaniswari Azmi Dewi Universitas Gadjah Mada
  • Tyas Larasati Universitas Gadjah Mada

DOI:

https://doi.org/10.36563/x9b6a809

Keywords:

Carbon credit trading, Capital market efficiency, Carbon markets, Climate policy, Green finance

Abstract

This study aims to synthesize research trends, identify the multifaceted impacts of carbon policies, and map the complex inter-market dynamics related to carbon credit trading and capital market efficiency through a systematic literature review. The method employed is a systematic literature review analyzing scholarly articles, with a rapidly increasing publication trend between 2020 and 2025. Results indicate that carbon credit trading policies significantly drive technological innovation, enhance firm market value, improve carbon emission efficiency, and allocate capital towards green initiatives. Carbon markets exhibit complex price dynamics characterized by high volatility, long-memory, and multifractality, often challenging the Efficient Market Hypothesis. Policy uncertainty, negative news, and external economic shocks significantly amplify price fluctuations, while market liquidity and green financial certificates can stabilize prices. Strong interactions exist between carbon prices and clean energy and commodity markets, demonstrating two-way causality and potential systemic risks. The theoretical contribution of this study is to extend the understanding of how carbon pricing mechanisms interact with existing capital market structures, particularly by highlighting the heterogeneity of impacts based on firm and regional characteristics. Despite challenges such as low pilot-market stability and strategic corporate behaviors like ‘carbon washing’, the study concludes that carbon credit trading has significant implications for green finance, climate risk management, and corporate decarbonization strategies, necessitating robust frameworks to navigate these complexities and encouraging further research in emerging economies and longitudinal analyses.

Downloads

Download data is not yet available.

References

Adow, Anass Hamadelneel, Mahmood, Haider, & Furqan, Maham (2025). Exploring the Effects of Energy Consumption, Financial Market Development, and Urbanization on Co2 Emissions in Gcc Countries: Cross-Sectional Dependence Analysis. International Journal of Energy Economics and Policy, 15(3), 146-154. https://doi.org/10.32479/ijeep.18516

Chai, Shanglei, Sun, Ruixuan, Zhang, Ke, Ding, Yueting, & Wei (2022). Is Emissions Trading Scheme (Ets) an Effective Market-Incentivized Environmental Regulation Policy? Evidence from China's Eight Ets Pilots. International Journal of Environmental Research and Public Health, 19(6), 3177. https://doi.org/10.3390/ijerph19063177

Chen, Lei, Liu, Yining, Gao, Yue, & Wang, Jingjing (2021). Carbon Emission Trading Policy and Carbon Emission Efficiency: An Empirical Analysis of China's Prefecture-Level Cities. Frontiers in Energy Research, 9. https://doi.org/10.3389/fenrg.2021.793601

Chen, Wei, & Tian, Yuan (2024). The Unintended Consequence of Environmental Regulations on Earnings Management: Evidence from Emissions Trading Scheme in China. Sustainability, 16(16), 7092. https://doi.org/10.3390/su16167092

Deng, Jing, Zheng, Yujie, Zhang, Yun, Liu, Cheng, & Pan, Huanxue (2023). Dynamic Spillovers between Carbon Price and Power Sector Returns in China: A Network-Based Analysis before and after Launching National Carbon Emissions Trading Market. Energies, 16(14), 5578. https://doi.org/10.3390/en16145578

Dinca, Zeno, Oprean-Stan, Camelia, & Balsalobre‐Lorente, Daniel (2025). UK Carbon Price Dynamics: Long-Memory Effects and AI-Based Forecasting. Fractal and Fractional, 9(6), 350. https://doi.org/10.3390/fractalfract9060350

Dong, Hongwei, Hu, Yue, Yang, Yihe, & Jiang, Wenjing (2023). A Multi-Strategy Integration Prediction Model for Carbon Price. Energies, 16(12), 4613. https://doi.org/10.3390/en16124613

Flori, Andrea (2024). Energy commodities spillover analysis for assessing the functioning of the European Union Emissions Trading System trade network of carbon allowances. Scientific Reports, 14(1), 21708. https://doi.org/10.1038/s41598-024-72518-5

Jiang, Wei, Jiang, Jingang, & Chen, Sonia Chien-I (2025). Untangling Carbon-Clean Energy Dynamics: A Quantile Granger-Causality Perspective. Sustainability, 17(7), 3118. https://doi.org/10.3390/su17073118

Kong, Shaohua, Li, Hanzun, & Tan, Shuwen (2023). Carbon markets, energy transition, and green development: a moderated dual-mediation model. Frontiers in Environmental Science, 11. https://doi.org/10.3389/fenvs.2023.1257449

Lee, Yun-Jung, Kim, Neung-Woo, Choi, Ki-Hong, & Yoon, Seong‐Min (2020). Analysis of the Informational Efficiency of the EU Carbon Emission Trading Market: Asymmetric Mf-Dfa Approach. Energies, 13(9), 2171. https://doi.org/10.3390/en13092171

Liao, Mingzhu, Long, Feng, Tian, Xue, Bi, Fenfen, Tian, Wei, Li, Xiao, & Ge, Chazhong (2025). A study on factors influencing the national carbon emission trading price in China. PLoS One, 20(10), e0333788. https://doi.org/10.1371/journal.pone.0333788

Liu, Jing, Ding, Xin, Song, Xiaoqian, Tao, Dong, Zhao, Aiwen, & Tan, Mi (2023). Research on the Spillover Effect of China's Carbon Market from the Perspective of Regional Cooperation. Energies, 16(2), 740. https://doi.org/10.3390/en16020740

Liu, Wenjie, & Zhu, Peng (2024). The impact of green finance on the intensity and efficiency of carbon emissions: the moderating effect of the digital economy. Frontiers in Environmental Science, 12. https://doi.org/10.3389/fenvs.2024.1362932

Lyu, Jingye, Cao, Ming, Wu, Kuang, Li, Haifeng, & Mohi-ud-din, Ghulam (2020). Price volatility in the carbon market in China. Journal of Cleaner Production, 255, 120171. https://doi.org/10.1016/j.jclepro.2020.120171

Sheng, Jiping, Gao, Xiaoge, & Sun, Yongqi (2024). Sustainability of the Food Industry: Ecological Efficiency and Influencing Mechanism of Carbon Emissions Trading Policy in China. Sustainability, 16(5), 2059. https://doi.org/10.3390/su16052059

Song, Chenzhu (2024). Analysis of China's carbon market price fluctuation and international carbon credit financing mechanism using random forest model. PLoS One, 19(3), e0294269. https://doi.org/10.1371/journal.pone.0294269

Song, Yazhi, Li, Yin, & Peng, Ke (2025). How does carbon pricing leverage emission reductions in the power sector? Evidence from China's national carbon market. Carbon Balance and Management, 20(1), 46. https://doi.org/10.1186/s13021-025-00340-1

Tang, Maogang, Cheng, Silu, Guo, Wenqing, Ma, Weibiao, & Hu, Fengxia (2022). Effects of Carbon Emission Trading on Companies' Market Value: Evidence from Listed Companies in China. Atmosphere, 13(2), 240. https://doi.org/10.3390/atmos13020240

Uddin, Mohammed Ahmar, Chang, Bisharat Hussain, Aldawsari, Salem Hamad, & Li, Ruoyu (2025). The Interplay Between Green Finance, Policy Uncertainty and Carbon Market Volatility: A Time Frequency Approach. Sustainability, 17(3), 1198. https://doi.org/10.3390/su17031198

Wang, Chuyi, Guo, Jitao, Xu, Wei, & Qin, Shanyong (2024). The impact of digital transformation on corporate green governance under carbon peaking and neutrality goals: Evidence from China. PLoS One, 19(6), e0302432. https://doi.org/10.1371/journal.pone.0302432

Wang, Jingyuan, & Luo, Qingfeng (2025). Synergistic effects of environmental credit evaluation and emissions trading in promoting enterprise carbon reduction. Frontiers in Environmental Science, 13. https://doi.org/10.3389/fenvs.2025.1497502

Wang, Ke, Wang, Zhixin, Xian, Yujiao, Shi, Xunpeng, Yu, Jian, Feng, Kuishuang, Hubacek, Klaus, & Wei, Yi‐Ming (2022). Optimizing the rolling out plan of China's carbon market. iScience, 26(1), 105823. https://doi.org/10.1016/j.isci.2022.105823

Wang, Yuxuan, & Lyu, Chan (2025). The Dark Side of the Carbon Emissions Trading System and Digital Transformation: Corporate Carbon Washing. Systems, 13(8), 619. https://doi.org/10.3390/systems13080619

Wang, Zijin, Guo, Jitao, & Luo, Gengyan (2022). The Impact of Chinese Carbon Emissions Trading System on Efficiency of Enterprise Capital Allocation: Effect Identification and Mechanism Test. Sustainability, 14(20), 13151. https://doi.org/10.3390/su142013151

Weng, Zhixiong, Liu, Tingting, & Cheng, Cuiyun (2022). Reduction effect of carbon markets: A case study of the Beijing-Tianjin-Hebei region of China. Frontiers in Environmental Science, 10. https://doi.org/10.3389/fenvs.2022.1013708

Yan, Guihuan, & Shi, Zhilei (2024). A Study on the Impact of Pilot Carbon Emission Trading Policies on Corporate Performance. Sustainability, 16(5), 2214. https://doi.org/10.3390/su16052214

Yang, Xiao, Wen, Jia, Wang, Kedan, & Peng, Geng (2024). Does the National Carbon Emissions Trading Market Promote Corporate Environmental Protection Investment? Evidence from China. Sustainability, 16(1), 402. https://doi.org/10.3390/su16010402

Yao, Yi, Tian, Lixin, & Cao, Guangxi (2022). The Information Spillover among the Carbon Market, Energy Market, and Stock Market: A Case Study of China's Pilot Carbon Markets. Sustainability, 14(8), 4479. https://doi.org/10.3390/su14084479

Zhang, Fang, & Zhang, Zhengjun (2020). The tail dependence of the carbon markets: The implication of portfolio management. PLoS One, 15(8), e0238033. https://doi.org/10.1371/journal.pone.0238033

Zhang, Gong, & Bi, Shulei (2023). Inhibition or promotion: the impact of carbon emission trading on market structure: evidence from China. Frontiers in Energy Research, 11. https://doi.org/10.3389/fenrg.2023.1238416

Zheng, Sisi, & Jin, Shanyue (2023). Is corporate green investment a determinant of corporate carbon emission intensity? A managerial perspective. Heliyon, 9(12), e22401. https://doi.org/10.1016/j.heliyon.2023.e22401

Zhu, Rui, Long, Liyu, & Gong, Yinghua (2022). Emission Trading System, Carbon Market Efficiency, and Corporate Innovations. International Journal of Environmental Research and Public Health, 19(15), 9683. https://doi.org/10.3390/ijerph19159683

Downloads

Published

2026-09-30

Issue

Vol. 5 No. 1 (2026)

Section

Articles

License

Copyright (c) 2026 Ardaniswari Azmi Dewi, Tyas Larasati

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Copyright on any article is retained by the author(s).
  2. The author grants the journal, right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
  3. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal’s published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
  4. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
  5. The article and any associated published material is distributed under the Creative Commons Attribution-ShareAlike 4.0 International License

Deprecated: json_decode(): Passing null to parameter #1 ($json) of type string is deprecated in /var/www/html/plugins/generic/citations/CitationsPlugin.php on line 68

How to Cite

CARBON CREDIT TRADING AND CAPITAL MARKET EFFICIENCY: A SYSTEMATIC LITERATURE REVIEW. (2026). BEMJ: Business, Entrepreneurship, and Management Journal, 5(1), 219-230. https://doi.org/10.36563/x9b6a809