Efficiency and distributional impacts of tradable white certificates compared to taxes, subsidies and regulations

Tradable White Certificates (TWC) schemes, also labelled Energy-Efficiency Certificatesschemes, were recently implemented in Great Britain, Italy and France. Energy suppliers have to fund a given quantity of energy efficiency measures, or to buy so-called“white certificates” from other suppliers who exceed their target. We develop a partialequilibrium model to compare TWC schemes to other policy instruments for energyefficiency, i.e., energy taxes, subsidies on energy-saving goods and regulations fixing aminimum level of energy-efficiency. The model features an endogenous level of energyservice and we analyse the influence of the substitutability between energy and energy-saving goods to produce the energy service, as well as the influence of the elasticity ofdemand for the energy service. We show that if the level of energy service consumption is fixed, a TWC scheme is asefficient as an energy tax, but that it is much less otherwise because it does not providethe optimal incentive to reduce the consumption of energy service. This inefficiency isworsened if energy suppliers’ targets are fixed than if they are proportional to thesuppliers’ current output. On the other hand, compared to taxes, a TWC scheme allowsreaching a given level of energy savings with a lower increase in the consumers’energy price, which may ease its implementation.