Transaction costs of Tradable White Certificate schemes: The Energy Efficiency Commitment as case study

Abstract

This paper analyses the nature and scale of transaction costs (TCs) borne by obliged parties under a “Tradable White Certificate” (TWC) scheme. Taking the first phase of the Energy Efficiency Commitment (EEC1) in Great Britain as a case study, several sources of TCs were considered, such as search for information, persuasion of customers, negotiation with business partners, and measurement and verification activities. Information was obtained through interviews and a questionnaire distributed to obliged parties. Results show that the most significant sources of TCs were related to search for information, persuading customers and negotiating with managing agents/contractors to implement energy efficiency measures. Perceived high TCs related to contract negotiation and liability risks slightly reduced the low trading level. The scale of TCs was estimated to be around 10% and 30% of total investments costs for the lighting and insulation segments, respectively. The results indicate that, despite the presence and scale of TCs, the EEC1 scheme generated energy savings that yielded net societal benefits. Estimated financial benefits range from 0.6 to 6 p/kWh for insulation and lighting savings, respectively. When avoided external costs due to electricity savings are included, estimated economic benefits range from 3 to 8 p/kWh. Several lessons from the EEC1 can be drawn for TWC schemes. Among others, it is found that informative policy instruments to raise awareness among end-users are critical if a TWC scheme is to deliver cost-effective energy savings. In all, the nature and scale of TCs under TWC schemes will differ because of a number of endogenous and exogenous determinants.