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Promoting renewable electricity generation in imperfect markets: price vs. quantity policies

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Author Info
Reinhard Madlener () (Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)
Weiyu Gao (Shanghai Development Research Center)
Ilja Neustadt () (Socioeconomic Institute, University of Zurich)
Peter Zweifel () (Socioeconomic Institute, University of Zurich)

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Abstract

The search for economically efficient policy instruments designed to promote the diffusion of renewable energy technologies in liberalized markets has led to the introduction of quota-based tradable ‘green’ certificate (TGC) schemes for renewable electricity. However, there is a debate about the pros and cons of TGC, a quantity control policy, compared to guaranteed feed-in tariffs, a price control policy. In this paper we contrast these two alternatives in terms of social welfare, taking into account that electricity markets are not perfectly competitive, and show that the price control policy dominates the quantity control policy in terms of social welfare.

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File URL: http://www.soi.uzh.ch/research/wp/2008/wp0809.pdf
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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0809.

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Length: 34 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:soz:wpaper:0809

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Related research
Keywords: Tradable green certificates; Renewable portfolio standard; Quota target; Feed-in tariff; Cournot duopoly;

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Find related papers by JEL classification:
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
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  1. 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)
  2. 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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  3. Berry, David, 2002. "The market for tradable renewable energy credits," Ecological Economics, Elsevier, vol. 42(3), pages 369-379, September. [Downloadable!] (restricted)
  4. David M. Newbery, 2002. "Privatization, Restructuring, and Regulation of Network Utilities," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640481, January.
  5. Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August. [Downloadable!] (restricted)
  6. Madlener, Reinhard & Stagl, Sigrid, 2005. "Sustainability-guided promotion of renewable electricity generation," Ecological Economics, Elsevier, vol. 53(2), pages 147-167, April. [Downloadable!] (restricted)
  7. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
  8. Palmer, Karen & Burtraw, Dallas, 2005. "Cost-effectiveness of renewable electricity policies," Energy Economics, Elsevier, vol. 27(6), pages 873-894, November. [Downloadable!] (restricted)
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  9. Dinica, Valentina & Arentsen, Maarten J., 2003. "Green certificate trading in the Netherlands in the prospect of the European electricity market," Energy Policy, Elsevier, vol. 31(7), pages 609-620, June. [Downloadable!] (restricted)
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