Abstract
Around the world, energy markets are being liberalized with the goal of achieving fully competitive markets while at-taining environmental policy objectives. This paper considers a system of Tradable Green Certificates (TGCs)—a mar-ket based regulatory instrument designed to promote electricity generation from renewable energy sources. In a TGC program, the principal policy instrument is the “percentage requirement” which stipulates the percentage of total elec-tricity generation that must be obtained from renewable sources. This paper provides a preliminary investigation of the socially optimal choice of the percentage requirement in a Cournot duopoly setting. The paper discusses the problem geometrically and considers some of the practical difficulties associated with the determination of the optimal percent-age requirement. Several important avenues for generalization of the results are also discussed.
Highlights
Around the world, and in the European Union, energy markets are being liberalized, with the goal of achieving fully competitive energy markets while attaining environmental policy objectives
This paper considers a system of Tradable Green Certificates (TGCs)—a market based regulatory instrument designed to promote electricity generation from renewable energy sources
The analysis has demonstrated that the value selected for the percentage requirement has endogenous effects on both black and green producers revenues and costs and output levels
Summary
In the European Union, energy markets are being liberalized, with the goal of achieving (ideally) fully competitive energy markets while attaining environmental policy objectives. Many countries have introduced systems of Tradable Greenertificates (TGCs)—market based regulatory instruments designed to promote electricity generation from renewable energy sources, such as wind, solar, biomass etc. Proponents of TGC programs argue that TGCs promote investment in renewable generation as well as allowing renewable targets to be met at lower cost than under direct subsidization schemes such as the “feed-in tariff” (Tamas, Shrestha and Zhou [6], Bergek and Jacobsson [7]). (i.e., a renewable portfolio standard) is stipulated which requires a specified percentage of total electricity generation to derive from renewable sources. The value selected by the regulator for the percentage requirement affects both black and green output levels, as well as TGC prices and the price of electricity paid by final consumers and is a policy instrument of central importance to the development and promotion of renewable electricity generation. The paper discusses some practical difficulties associated with the determination of the optimal percentage requirement and several directions in which this research could be further developed
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