Scandinavian Working Papers in Economics

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

No 04/16: Market power in interactive environmental and energy markets: The case of green certificates

Eirik Schrøder Amundsen () and Gjermund Nese ()
Additional contact information
Eirik Schrøder Amundsen: Department of Economics, University of Bergen, Postal: P.O.Box 7800, 5020 Bergen, Norway
Gjermund Nese: Norwegian Competition Authority., Postal: P.O.Box 439 Sentrum, 5805 Bergen, Norway

Abstract: A market for Tradable Green Certificates (TGCs) is strongly interwoven in the electricity market as the producers of green electricity are also the suppliers of TGCs. Therefore, strategic interaction may result. We formulate an analytic equilibrium model for simultaneously functioning electricity and TGC markets, and focus on the role of market power (i.e. Stackelberg leadership). One result is that a certificate system faced with market power may collapse into a system of per unit subsidies. Also, the model shows that TGCs may be an imprecise instrument for regulating the generation of green electricity.

Keywords: Renewable energy; Electricity; Green Certificates; Market power

JEL-codes: C70; Q28; Q42; Q48

18 pages, June 27, 2016

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