Systemic risk and the green transition: Carbon-price transmission in a european emerging economy

This paper examines how European carbon-price innovations are associated with systemic-risk dynamics among the six largest constituents of the Bucharest Exchange Trading (BET) index over 2018–2025. Using daily local-projection impulse responses, we analyse two complementary market-based systemic-risk measures: Conditional Value-at-Risk (CoVaR), capturing firms’ contribution to system-wide tail risk, and Marginal Expected Shortfall (MES), capturing vulnerability during market-wide stress. The results reveal sectoral asymmetry. EUA price innovations are associated with predominantly negative CoVaR and MES responses for the two major banks, TLV and BRD, suggesting that carbon-related stress is priced more strongly into non-financial, carbon-exposed firms than into diversified financial intermediaries. By contrast, carbon-exposed energy and utility firms, especially TGN and, at selected horizons, SNG and SNP, display more positive and regime-dependent responses. Hidroelectrica (H2O), reflecting its renewable-based generation mix, exhibits muted responses and low unconditional systemic risk throughout the sample. Overall, the findings suggest that carbon-price innovations are not uniformly associated with higher systemic risk in an emerging European economy. Instead, they coincide with an uneven reallocation of market-based risk toward carbon-exposed non-financial firms. These results provide relevant evidence for macroprudential monitoring, climate stress testing, and transition-risk supervision.