The dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in China

China's emissions trading scheme (CETS) pilots are emerging and fragmented markets; these emissions allowances markets may exhibit a different fundamental price process from the European Union's (EU) and the United States’ (US) emissions trading scheme (ETS). The dynamic linkage effects between energy and emissions allowances prices are investigated for regional ETS pilots in China using cointegration techniques. The empirical results confirm that, in the long run, coal, oil and natural gas prices are the main determinant factors of regional emissions allowances prices, except for the second phase Beijing ETS pilots; however, their long-run cointegration relationships in the Beijing and Shanghai pilots are not exactly in line with the Guangdong and Hubei pilots. In the short run, the changes in oil and natural gas prices in the second phase Beijing ETS pilot, the natural gas prices in the Shanghai ETS pilot, and the coal prices in the Hubei ETS pilot are found to have significant effects on regional emissions allowances prices in China. Finally, regional energy pricing inefficiency, regional emissions trading market overreaction and their inefficient fundaments may provide major obstacles in reducing the effectiveness of the fossil energy price pass-through to emissions allowances prices in regional ETS pilots.