Supporting renewable energy on liberalised markets: green electricity between additionality and consumer sovereignty

Abstract

The German feed-in regulation has been perhaps the most effective promotional policy for green electricity. However, with the growing momentum of the liberalisation process the current regulation is challenged by structural problems about how to address the demand side. Price regulation lefts only little room for private green electricity market activities. Moreover, the success of the feed-in regulation depends on a strict differentiation of the political segment and the emerging green electricity markets. The question, therefore, is about the role green electricity markets can (or should) perform in general. In order to evaluate green electricity markets the additionality criteria is frequently used, implying that markets are only desirable if they lead to additional environmental effects. The additionality criteria has two implications: First, transformed into individual behaviour, additionality implies that consumers are assumed to act as pure altruists. However, there is evidence from empirical studies that green electricity consumers behave more as impure altruists: they are not so much interested in the objective environmental impact of their behaviour but more objected to receive a private satisfaction from buying an environmental friendly product. Whereas theoretical models in the case of pure altruism suggest that private activities crowd out totally when policy becomes active in supporting the public good, this crowding out disappears in the case of impure altruism. Second, using end-state criteria such as the additionality principle as pre-condition, and neglecting process criteria such as consumer sovereignty, means to prevent establishing competitive market process right at the outset in principle.