Abstract
The paper elaborates on the possible correlations between the electricity prices in two neighbouring regions. The question is of interest since a large part of the public and some politicians feel that the European CO2 emission trading system ought not to affect the hydro‐ and nuclear‐based Swedish electricity market. The analysis builds upon empirical observations and simple econometric testing. Our results highlight some of connections between the Swedish and German electricity prices and we qualitatively discuss these results. Furthermore, we restate the obvious fact that the investment climate in Sweden must improve if the wish is to avoid having coal‐based electricity production on the margin.
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