Scandinavian Working Papers in Economics

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

No 03/05: Integrated Tradable Green Certificate Markets: Functioning and Compatibility

Eirik Schrøder Amundsen () and Gjermund Nese ()
Additional contact information
Eirik Schrøder Amundsen: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Gjermund Nese: Institute for Research in economics and Business Administration (SNF), Postal: Breiviksveien 40, N-5045 Bergen, Norway

Abstract: Many countries plan to increase the proportion of their electricity supply obtained from renewable sources relative to nonrenewable sources. Recently, the EU has implemented a system of tradable emission permits and many countries have introduced systems of tradable green certificates (TGCs). In this paper, we analyze how integrated TGC markets function and how they are affected by harsher CO2 emission constraints. A key result of our analytical model is that TGCs may be an imprecise instrument for regulating the generation of green electricity. Furthermore, our analysis shows that the combination of TGCs with a system of tradable emission permits may yield outcomes contrary to the intended purpose. The results are valid under both autarky and international trade.

Keywords: Renewable energy; electricity; green certificates; emissions trading.

JEL-codes: Q28; Q42; Q48

25 pages, April 5, 2005

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