**5. Discussion of Findings**

This section discusses our findings regarding the relationship between carbon and electricity prices. Our abovementioned findings from the autoregressive models deserve attention. According to expectation, the price of electricity is supposed to rise with a higher carbon price, thus giving rise to a positive relationship, since spending on emission allowances introduces an additional cost driver. We thus shed light on the potential reasons for the nature of the relationship:


total electricity demand) must decrease at the same pace. Otherwise, the burgeoning share of renewables inherently results in an excess supply of emission allowances, thus counteracting one of the main advantages of renewable energies.

• **Merit order effect.** Large carbon prices are also linked to larger marginal costs for carbon-intensive power plants as opposed to renewable energies. This explains the differential influence of carbon prices as revealed by our quantile regressions. An additional reason is given by support schemes for renewables that sometimes gran<sup>t</sup> preferential treatment. That is, wind and solar power must be consumed before power is generated via other means. Hence, carbon prices have a less significant effect on electricity prices when renewables produce a high amount of electricity, i.e., when electricity prices are low.
