Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 921: A Reexamination of Renewable Electricity Policy in Sweden

Sven-Olof Fridolfsson () and Thomas TangerĂ¥s ()
Additional contact information
Sven-Olof Fridolfsson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Thomas TangerĂ¥s: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Green certificates are the main instrument for promoting renewable electricity (RES-E) in Sweden. But certificates cover only a limited share of total RES-E production. Under partial coverage, crowding out may arise whereby costly new RES-E replaces inexpensive old RES-E. Granting certificates to all of RES-E production improves efficiency, but leaves windfall rent to otherwise profitable facilities. We also analyze transaction costs in the permit process for new RES-E in Sweden. Municipalities veto socially desirable projects because of asymmetrically distributed investment costs and benefits. We propose market-based permit fees rather than limited veto rights as a solution to this NIMBY problem.

Keywords: Crowding out; Green certificates; NIMBY; Transaction costs; Windfall rent

JEL-codes: D23; Q48; Q52; Q54

19 pages, June 18, 2012

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