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Price Volatility and Banking in Green Certificate Markets

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Author Info
Eirik S. Amundsen (Department of Economics, University of Bergen)
Fridrik M. Baldursson (Department of Economics, University of Iceland)
Jørgen Birk Mortensen (Institute of Economics, University of Copenhagen)

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Abstract

There is concern that prices in a market for Green Certificates (GCs) primarily based on volatile wind power will fluctuate excessively, leading to corresponding volatility of electricity prices. Applying a rational expectations simulation model of competitive storage and speculation of GCs the paper shows that the introduction of banking of GCs may reduce price volatility considerably and lead to increased social surplus. Banking lowers average prices and is therefore not necessarily to the benefit of “green producers”. Proposed price bounds on GC-prices will reduce the importance of banking and even of the GC system itself.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-08.

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Length: 34 pages
Date of creation: Jul 2005
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Handle: RePEc:kud:kuiedp:0508

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Related research
Keywords: electricity; environment; commodity speculation; green certificates; marketable permits; uncertainty;

Other versions of this item:

Find related papers by JEL classification:
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Fristrup, Peter, 2003. "Some challenges related to introducing tradable green certificates," Energy Policy, Elsevier, vol. 31(1), pages 15-19, January. [Downloadable!] (restricted)
  3. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208. [Downloadable!] (restricted)
  4. Yates, Andrew J. & Cronshaw, Mark B., 2001. "Pollution Permit Markets with Intertemporal Trading and Asymmetric Information," Journal of Environmental Economics and Management, Elsevier, vol. 42(1), pages 104-118, July. [Downloadable!] (restricted)
  5. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April. [Downloadable!] (restricted)
  6. Jensen, S. G. & Skytte, K., 2002. "Interactions between the power and green certificate markets," Energy Policy, Elsevier, vol. 30(5), pages 425-435, April. [Downloadable!] (restricted)
  7. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, vol. 23(5), pages 489-509, September. [Downloadable!] (restricted)
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  8. Wright, Brian D & Williams, Jeffrey C, 1984. "The Welfare Effects of the Introduction of Storage," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 169-92, February. [Downloadable!] (restricted)
  9. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
  10. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Amundsen, Eirik S. & Nese, Gjermund, 2006. "Integratation of Tradable Green Certificate Markets: What can be expected?," MPRA Paper 10628, University Library of Munich, Germany. [Downloadable!]
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