Carbon price dynamics in the EU ETS - The impact of fuel switching

Sammanfattning: This paper examines the carbon price dynamics in the European Emission Trading System (EU ETS). It seeks to answer whether these can be explained by marginal emission abatement costs, as stated by theoretical propositions. The primary abatement method, fuel switching, and other potential determinants are examined to test their relative importance in carbon price dynamics. The results from the performed OLS-regressions do not support the hypothesis that fuel switching is a strong indicator of the carbon price movements. The results suggest that the market potentially suffers from inefficiency and/or that the tested model is insufficient to explain the price fluctuations.