Tradable Green Certificate Scheme Research Articles

Prices vs. percentages: Use of tradable green certificates as an instrument of greenhouse gas mitigation

We consider a regulator who seeks to achieve a specific target path of greenhouse gas emission reductions in the electricity sector. Generation stems from two sources: renewable (green) and fossil (black) sources, which cause emissions. We construct a dynamic model and explore the suitability of a tradable green certificate (TGC) scheme for solving this problem. Further, we study the resulting incentives for construction of new green generation capacity. We provide a novel contribution to the TGC literature by using a dynamic model that allows analyses of time-related issues that are inaccessible with static models. Further, we focus explicitly on calibration of the time path of percentage requirements. We devise two specific time paths and show that the use of a TGC scheme can achieve a specific dynamic emission target but always results in overinvestment in new green generation capacity. We also derive results from using an emission fee and a green subsidy, compare the different instruments, and conduct a welfare ranking. A TGC scheme is not as cost-effective as an optimal emission fee but is more effective than a green subsidy.

Optimal Trading Decision-Making of Power Supply Chain under Renewable Portfolio Standards

Under the background of implementing renewable portfolio standards and the ever-improving tradable green certificate scheme, the increasingly environmentally-friendly preference of power users is leading to changes in electricity demand, which, in turn, is driving changes in the decision-making behaviors of various actors in the power supply chain. Based on this, with the goal of pursuing maximum profit, consumer-power-demand functions have been introduced with some consideration of the factors of consumer preference to establish an optimal profit model for each trading subject in non-cooperative states of the power supply chain, under the constraints of meeting renewable energy portfolio standards. Here, the optimal strategy of each trading subject is presented by adopting the reverse induction method. Furthermore, examples are used to analyze factors such as the influence of environmental protection preferences, quota ratios, price substitutions, and market demand as well as the optimal profit of each trading subject in view of providing a reference for the decision-making in the power supply chain trading subjects.

Renewable energy in the European Union: support policy and outcomes

The article deals with the study of support schemes for renewable energy promotion in the European Union member states. The main strategic documents that declare short-term and long-term goals to increase the share of green energy in final energy consumption of the European Union are considered. The primary motivational mechanisms aimed at encouraging the production of energy from renewable energy sources, namely feed-in tariff models, feed-in premium model, and tradable green certificate scheme are analyzed. In addition, a number of secondary motivational tools such as tender systems, net metering, tax and customs privileges which are used in combination with the primary mechanisms for more effective promotion of renewable energy are described. The results of the influence of policy in renewable energy field on increasing the share of green energy in the total energy mixes of European Union member states are presented.

Two-stage joint equilibrium model of electricity market with tradable green certificates

Renewable portfolio standard (RPS) with tradable green certificate (TGC) scheme has important influences on the market equilibrium outcomes and generation firms’ strategic behaviors. The main objective of this paper is to investigate that under the RPS with TGC scheme, who and how to exercise the market power, and to what extent market powers are exercised in the electricity wholesale and TGC markets. This is achieved by firstly proposing a two-stage joint equilibrium model based on the oligopolistic competition equilibrium theory. The model is then formulated as an equilibrium problem with equilibrium constraints (EPEC) by using the backward induction method, which is further solved by the nonlinear complementarity approach. Finally, simulation results show that renewable firms tend to withhold some of TGCs to raise the TGC prices when the RPS is relatively low, otherwise they choose to cut down their electricity output to reduce the volume of TGC and raise the TGC price. Moreover, facing the increasing TGC price, fossil fuel firms tend to withhold their electricity output to decrease the demand of TGCs and lower the TGC price. This study has meaningful implications for design of the electricity markets with TGC market.

Swedish-Norwegian tradable green certificates: Scheme design flaws and perceived investment barriers

The EU Commission recommends using market-based support schemes for renewable-electricity projects. One example is the Swedish-Norwegian tradable green certificate scheme. We examine whether design features in the Norwegian part of this scheme, specifically, the scheme's short duration and the way it is to be abruptly terminated, contribute to investors' perceptions of barriers. We apply econometric techniques on primary data collected in two surveys of Norwegian investors in hydropower, and we use real options theory to predict and interpret investors' responses. We show that: (1) immediately after the scheme was introduced, investors are eager to lock in future subsidies by investing immediately and concerned with factors that may delay the completion of their projects; (2) as the certificate deadline neared, investors have become increasingly pessimistic and concerned with economic and risk barriers. Investors in big hydropower plants with regulation reservoirs are particularly concerned with the risk of not completing their projects in time to gain the right to sell certificates. These findings are consistent with the predicted responses to the scheme design derived from real options theory. In contrast to earlier studies, we find no difference in responses to the scheme design across investor types.

Dancing to the Rhythms of the Fossil Fuel Landscape: Landscape Inertia and the Temporal Limits to Market-Based Climate Policy

This article makes a contribution to the critique of market-based mechanisms for climate and energy policy. It explores the environmental effectiveness of market instruments by engaging a broadly conceived “fossil fuel landscape”, or the material, social, and political inertia of fossil energy dependence, as a factor delimiting policy outcomes. The argument is developed through a focus on the idea of economic efficiency as a key ideological construct underlying market-based policy, and draws on examples from two different market instruments, namely the EU Emissions Trading Scheme, and the Flemish tradable green certificate scheme. I argue that an understanding of the shortcomings of these, and similar, policies requires acknowledgment of the political and socio-economic power that emanates from the temporal dynamics of fossil fuel capitalism, which are reproduced when economic efficiency becomes the key focus of climate policy.

Money for nothin’ and coal for free: ‘Technology neutrality’ and biomass development under the Flemish tradable green certificate scheme

Recent literature has highlighted the creation of multiple equivalences as an important factor underpinning the rise of market-based mechanisms for environmental regulation. Extending these insights into the field of renewable energy policy, this article focuses on one example of this trend – namely the principle of technology neutrality as applied under the Flemish tradable green certificate scheme – and analyzes the concrete ways in which it has shaped the evolution of the Flemish renewable energy landscape. Concretely, the article shows that technology neutrality played a key role in promoting the uptake of biomass combustion in old coal power plants in Flanders, which led to a number of undesirable outcomes and gave rise to significant opposition. Correcting these shortcomings required a number of policy interventions on the part of the Flemish government that fundamentally moved the scheme away from the principle of technology neutrality and towards a more hybrid RE support system, suggesting that the promotion of technology neutrality was fundamentally misguided. Together with similar experiences from related market-based instruments, this suggests that the promotion of technology neutrality has far-reaching implications for the environmental effectiveness of climate and energy policies. In light of the continued promotion of the principle, the article calls for full recognition of the inherent technological choices that are being made through the promotion of policies that purport to be technology-neutral.

Methodology for forecasting in the Swedish–Norwegian market for el-certificates

In this paper we describe a novel methodology for forecasting in the Swedish–Norwegian el-certificate market, which is a variant of a tradable green certificate scheme. For the forecasting, the el-certificate market is integrated in the electricity-market model EMPS, which has weekly to hourly time-step length, whereas the planning horizon can be several years. Strategies for the certificate inventory are calculated by stochastic dynamic programming, whereas penalty-rates for non-compliance during the annual settlement of certificates are determined endogenously.In the paper the methodology is described, and we show the performance of the model under different cases that can occur in the el-certificate market. The general results correspond to theoretical findings in previous studies for tradable green certificate markets, in particular that price-scenarios spread out in such a way that the unconditional expected value of certificates is relatively stable throughout the planning period. In addition the presented methodologies allows to assess the actual dynamics of the certificate price due to climatic uncertainty. Finally, special cases are indentified where the certificate price becomes excessively high respectively zero, due the design-specific dynamics of the penalty rate.

The Profitability of Power Generating Firms and Policies Promoting Renewable Energy

With policies to promote power generation from renewable energy sources (RES) becoming important part of climate and energy policy worldwide, there is now considerable interest in understanding how these different market-based mechanisms affect power generating firms in practice. The existing theory provides conflicting guidance regarding profitability of Tradable Green Certificates (TGC) over Feed-in-Tariff (FIT) based policies. Thus, the main goal of this study is to empirically assess the performance of power generating firms operating in the TGC scheme environment relative to the performance of power generating firms operating under alternatives RES support mechanisms. The main finding of this study is that, in Europe, TGC schemes are associated with higher returns for power generating firms. This supports the hypothesis that higher investment uncertainty induced by the TGC policy nature coupled with some market imperfections lead to higher profits for electricity producers operating in TGC schemes.

Interactions of white certificates with other policy instruments in Europe

In a tradable white certificate (TWC) scheme, each certificate issued represents a certain amount of energy saved. Used in conjunction with an energy-saving obligation on certain parties in the energy supply chain and with rules for trading, monitoring and verification established, an efficient market for energy savings in sectors not covered by the European Union (EU) Emissions Trading Scheme can be established. However, a plethora of other mechanisms are already in place to promote a more sustainable use of energy in Europe. This paper analyses the interactions (both potential and realised in existing schemes) between TWCs and other policy instruments including tradable green certificates, the European Union Emissions Trading Scheme, the European Union Energy Performance in Buildings Directive as well as taxes, subsidies and loans. Measures implemented through a TWC scheme that reduce the consumption of electricity can make targets under a tradable green certificate scheme easier to attain. Where a tradable green certificate scheme contains relative targets, the target should be increased to achieve the same absolute amount of renewable power. A TWC scheme can also reduce the number of allowances electricity generators will need to surrender under the EU Emissions Trading Scheme. By reducing the available emission rights in the National Allocation Plans, this effect is possible to counteract.

The Impact of Market Power on the Functioning of Tradable Green Certificates Schemes

Quotas with Tradable Green Certificates (TGC) schemes have generally been regarded as an effective and cost-efficient way to promote electricity from renewable energy sources (RES-E). The theoretical analysis of the effectiveness and cost-effectiveness of TGC schemes has traditionally taken place assuming perfect competition in, both the electricity and TGC markets. However, these markets may not approach the conditions of a perfectly competitive market. This paper analyses the influence of market power in, both, the TGC and electricity markets on RES-E deployment, cost-effectiveness and cost distribution. The major conclusion is that market power should not be a concern. Market power does not affect the effectiveness of a quota with TGC system, i.e., it does not affect RES-E deployment, although market power on the supply side of markets may negatively affect the cost-effectiveness of the system and increase the cost burden for electricity consumers.

The Impact of Market Power on the Functioning of Tradable Green Certificates Schemes

Quotas with Tradable Green Certificates (TGC) schemes have generally been regarded as an effective and cost-efficient way to promote electricity from renewable energy sources (RES-E). The theoretical analysis of the effectiveness and cost-effectiveness of TGC schemes has traditionally taken place assuming perfect competition in, both the electricity and TGC markets. However, these markets may not approach the conditions of a perfectly competitive market. This paper analyses the influence of market power in, both, the TGC and electricity markets on RES-E deployment, cost-effectiveness and cost distribution. The major conclusion is that market power should not be a concern. Market power does not affect the effectiveness of a quota with TGC system, i.e., it does not affect RES-E deployment, although market power on the supply side of markets may negatively affect the cost-effectiveness of the system and increase the cost burden for electricity consumers.

Short-term impact of green certificates and CO 2 emissions trading in the Swedish district heating sector

Swedish district-heating (DH) systems use a wide range of energy sources and technologies for heat-and-power generation. This provides the DH utilities with major flexibility in changing their fuel and technology mix when the economic conditions for generation change. Two recently introduced policy instruments have changed the DH utilities’ costs for generation considerably; the tradable green-certificate (TGC) scheme introduced in 2003 in Sweden, and the tradable greenhouse-gas emission permit (TEP) scheme introduced in the EU on January 1, 2005. The objective of this study is to analyse how these two trading schemes impact on the operation of the Swedish DH sector in terms of changes in CHP generation, CO 2 emissions, and operating costs. The analysis was carried out by comparing the most cost-effective operation for the DH utilities, with and without, the two trading schemes applied, using a model that handles the Swedish DH-sector system-by-system. It was found that the volume of renewable power generated in CHP plants only increased slightly owing to the TGC scheme. The TGC and the TEP schemes in force together, however, nearly doubled the renewable power-generation. CO 2 emissions from the DH sector may either increase or decrease depending on the combination of TGC and TEP prices. The overall CO 2 emissions from the European power-generation sector would, however, be reduced for all price combinations assuming that increased Swedish CHP generation replaces coal-condensing power (coal-fired plants with power generation only) in other European countries. The trading schemes also lower the operational costs of the DH sector since the cost increase owing to the use of more expensive fuels and the purchase of TEPs is outweighed by the increased revenues from sales of electricity and TGCs.

05/02639 A European-wide harmonised tradable green certificate scheme for renewable electricity: is it really so beneficial?

05/02639 A European-wide harmonised tradable green certificate scheme for renewable electricity: is it really so beneficial?

Linking renewable energy CDM projects and TGC schemes: An analysis of different options

Renewable energy CDM (RE-CDM) projects encourage cost-effective GHG mitigation and enhanced sustainable development opportunities for the host countries. CERs from CDM projects include the value of the former benefits (i.e., “climate change benefits”), whereas the second can be given value through the issuing and trading of tradable green certificates (TGCs). Countries could agree to trade these TGCs, leading to additional revenues for the investors in renewable energy projects and, therefore, further encouraging the deployment of CDM projects, currently facing significant barriers. However, the design of a combination of CDM projects and TGC schemes raises several conflicting issues and leads to trade-offs. This paper analyses these issues, identifies the alternatives that may exist to link TGC schemes with RE-CDM projects and analyses the impacts of those options on different variables and actors.

Sustainability-guided promotion of renewable electricity generation

In recent years, the threat of global climate change, high fuel import dependence, and rapidly rising electricity demand levels have intensified the quest for more sustainable energy systems. This in turn has increased the need for policy makers to promote electricity generation from renewable energy sources. Guaranteed prices coupled with a buy-back obligation for electricity fed into the grid is a popular renewables promotion instrument, especially in Europe. More recently, driven mainly by electricity market liberalisation efforts, quota targets for the share of renewables in combination with tradable ‘green’ certificates (TGC) have received considerable attention. TGC offer a greater theoretical potential for economic efficiency gains, due to price competition and the greater flexibility assigned to the obliged parties. While guaranteed prices and TGC schemes support the operation of renewable energy technology systems, bidding schemes for renewable energy generation capacity are used to raise economic efficiency on the plant construction side. All of these policy instruments suffer from the shortcoming that they do not explicitly account for the often widely varying environmental, social and economic impacts of the technologies concerned. In this paper, we propose a methodology for the design of renewable energy policy instruments that is based on integrated assessment. In particular, we argue that using participatory multicriteria evaluation as part of the design of renewable energy promotion policies would make it possible: (1) to differentiate the level of promotion in a systematic and transparent manner according to their socio-ecological economic impact, and (2) to explicitly account for the preferences of stakeholders. A further problem of existing TGC and bidding schemes is that diversity of supply could be severely diminished, if few low-cost technologies were allowed to dominate the renewable energy market. To ensure a certain diversity of technologies, our scheme suggests the use of different technology bands for technologies that are relatively homogeneous with respect to their maturity.

A European-wide harmonised tradable green certificate scheme for renewable electricity: is it really so beneficial?

Winds of change are blowing in the public promotion of renewable electricity (RES-E) in Europe. On the one hand, a move to allegedly more market-conform instruments for the promotion of RES-E has already taken place in some Member States. On the other hand, a Directive on the promotion of RES-E has recently been approved setting indicative targets for RES-E consumption and opening the possibility that a harmonised framework for support schemes will be implemented in Europe. This harmonised framework (in combination with trade in RES-E between Member States) can be compared to a situation in which Member States continue to apply their current support schemes. This paper analyses the pros and cons of harmonisation. The main conclusion is that if priority is given to the local/regional/national benefits of RES-E, then harmonisation in combination with a tradable green certificate scheme is not so advantageous for countries. Only if the policy priority is the achievement of the RES-E Directive targets at the minimum costs should harmonisation be favoured by national energy authorities.