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Department of Economics, University of Bergen Working Papers in Economics, Department of Economics, University of Bergen

No 02/03:
Price Volatility and Banking in Green Certificate Markets

Eirik S. Amundsen (), Fridrik M. Baldursson () and Jørgen Birk Mortensen ()

Abstract: There is concern that prices in a market for Green Certificates (GCs) primarily based on volatile wind power will fluctuate excessively, leading to corresponding volatility of electricity prices. Applying a rational expectations simulation model of competitive storage and speculation of GCs the paper shows that the introduction of banking of GCs may reduce price volatility considerably and lead to increased social surplus. Banking lowers average prices and is therefore not necessarily to the benefit of “green producers”. Proposed price bounds on GC -prices will reduce the importance of banking and even of the GC system itself.

Keywords: Electricity; Green Certificates; Uncertainty; Commodity Speculation; (follow links to similar papers)

JEL-Codes: Q28; Q42; Q48; (follow links to similar papers)

29 pages, February 26, 2003

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