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Explaining the interplay of three markets: Green certificates, carbon emissions and electricity

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  • Schusser, Sandra
  • Jaraitė, Jūratė

Abstract

The European Union's Emissions Trading System (EU ETS) and the Swedish-Norwegian Tradable Green Certificate System (Swedish-Norwegian TGC system) are two market-based instruments that have the overlapping goals to mitigate greenhouse gas (GHG) emissions by shifting economies to cleaner energy sources. Understanding the price signals and interactions of these two newly created markets is essential for all decision makers – regulators and direct market participants – who aim to reach the predefined policy goals in the most efficient manner. The interaction between these policy instruments has been widely examined from the theoretical perspective. This research contributes to the literature by empirically examining the interplay between the prices of three markets: (1) the price of tradable green certificates (TGC) in the Swedish-Norwegian TGC system, (2) the price of carbon in the EU ETS and (3) the price of electricity in the Nord Pool. We use a multivariate vector-autoregressive (VAR) approach to take into account the endogenous relationships between these prices. Our empirical results do not support the theoretical considerations that the impacts of carbon prices on TGC prices and hence on renewable electricity production are negative. Contrary, we find that, to date, increases in carbon prices positively affect TGC prices in the short run.

Suggested Citation

  • Schusser, Sandra & Jaraitė, Jūratė, 2018. "Explaining the interplay of three markets: Green certificates, carbon emissions and electricity," Energy Economics, Elsevier, vol. 71(C), pages 1-13.
    • Handle: RePEc:eee:eneeco:v:71:y:2018:i:c:p:1-13
    DOI: 10.1016/j.eneco.2018.01.012
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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • 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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