Spillover Effects of EU Climate Policy on Global Financial Systems: Evidence From the Emissions Trading Scheme

ABSTRACT This paper explores the international spillover effects of the European Union Emissions Trading System (EU ETS) on global equity markets from 2013 to 2021. Employing the CR correlation change test for static contagion analysis and the Dynamic Conditional Correlation (DCC)‐GARCH model to capture time‐varying correlations, we find a consistent positive association between EU carbon allowance prices and stock market performance across major economies. Our findings reveal significant transmission dynamics associated with key EU climate policy milestones, including the 2030 Climate and Energy Framework and the Energy Union Strategy. These findings indicate that the EU ETS exerts influence well beyond regional boundaries, illustrating how market‐based climate instruments shape financial conditions worldwide and providing policy‐relevant insights into the growing financial impact of environmental regulation in the context of global decarbonization.