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Journal article

Carbon Price Dynamics – Evidence from Phase II of the European Emission Trading Scheme

  • Abstract

    We empirically investigate potential determinants of the allowance price dynamics in the European Union Emission Trading Scheme during Phase II. In contrast to previous studies, we place particular emphasis on the fuel price selection. We show that results are extremely sensitive to choosing different price series of potential determinants, such as coal and gas prices. In general, only the influence of economic activity in Europe and hydropower provision in Norway is robustly explaining allowance price dynamics. The influence of fuel switching on allowance prices and, therefore, equalization of marginal abatement costs – in particular in the long run – is still rather small.
  • Keywords

    European emission trading; fuel switching; cointegration
  • JEL classification

    G14, Q54
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