Scandinavian Working Papers in Economics

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

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

Eirik S. Amundsen (), Fridrik M. Baldursson () and Jørgen Birk Mortensen ()
Additional contact information
Eirik S. Amundsen: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Fridrik M. Baldursson: Institute of Economic Studies, University of Iceland, Postal: 101 Reykjavik, Iceland
Jørgen Birk Mortensen: Institute of Economics, University of Copenhagen, Postal: Studiestræde 6, 1455 Copenhagen, Denmark

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

JEL-codes: Q28; Q42; Q48

29 pages, February 26, 2003

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