Volatility spillovers between the oil market and the European Union carbon emission market

This paper examines the dynamics of volatility transmission between EU emission allowances (EUA) and oil markets using a range-based volatility measure. We propose a multivariate conditional autoregressive range model with bivariate lognormal distribution to capture volatility dynamics and volatility spillovers between oil and EUA markets. Our findings for Phase II of the European Union Emissions Trading Scheme point to the existence of volatility dynamics and leverage effects and to no significant volatility spillovers between these markets. These results remained robust to other volatility measures and model specifications. •We examine volatility spillovers between the EU emission allowance and oil markets.•We employ a range-based volatility measure.•We consider a multivariate conditional autoregressive range model with bivariate lognormal distribution.•Volatility in each market is persistent and displays leverage effects.•No significant volatility spillovers are found between the oil and EU emission allowance markets.