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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.

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  • 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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    Cited by:

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    11. Irfan, Mohd, 2021. "Integration between electricity and renewable energy certificate (REC) markets: Factors influencing the solar and non-solar REC in India," Renewable Energy, Elsevier, vol. 179(C), pages 65-74.
    12. Yu, Xianyu & Ge, Shengxian & Zhou, Dequn & Wang, Qunwei & Chang, Ching-Ter & Sang, Xiuzhi, 2022. "Whether feed-in tariff can be effectively replaced or not? An integrated analysis of renewable portfolio standards and green certificate trading," Energy, Elsevier, vol. 245(C).
    13. Fatras, Nicolas & Ma, Zheng & Duan, Hongbo & Jørgensen, Bo Nørregaard, 2022. "A systematic review of electricity market liberalisation and its alignment with industrial consumer participation: A comparison between the Nordics and China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 167(C).
    14. Wei Wei & Ling He & Xiaofan Li & Qi Cui & Hao Chen, 2022. "The Effectiveness and Trade-Offs of Renewable Energy Policies in Achieving the Dual Decarbonization Goals in China: A Dynamic Computable General Equilibrium Analysis," IJERPH, MDPI, vol. 19(11), pages 1-18, May.
    15. Wang, Ge & Zhang, Qi & Su, Bin & Shen, Bo & Li, Yan & Li, Zhengjun, 2021. "Coordination of tradable carbon emission permits market and renewable electricity certificates market in China," Energy Economics, Elsevier, vol. 93(C).
    16. Tan, Qinliang & Ding, Yihong & Zheng, Jin & Dai, Mei & Zhang, Yimei, 2021. "The effects of carbon emissions trading and renewable portfolio standards on the integrated wind–photovoltaic–thermal power-dispatching system: Real case studies in China," Energy, Elsevier, vol. 222(C).
    17. Hu, Bo & Zhou, P., 2022. "Can the renewable power consumption guarantee mechanism help activate China's power trading market?," Energy, Elsevier, vol. 253(C).
    18. Song, Xiao-hua & Han, Jing-jing & Zhang, Lu & Zhao, Cai-ping & Wang, Peng & Liu, Xiao-yan & Li, Qiao-chu, 2021. "Impacts of renewable portfolio standards on multi-market coupling trading of renewable energy in China: A scenario-based system dynamics model," Energy Policy, Elsevier, vol. 159(C).
    19. Wenhui Zhao & Xiongjiantao Bao & Guanghui Yuan & Xiaomei Wang & Hongbo Bao, 2019. "The Equilibrium Model for the Coexistence of Renewable Portfolio Standards and Emissions Trading: The Supply Chain Analysis," Energies, MDPI, vol. 12(3), pages 1-29, January.
    20. Bolat, C. Kaan & Soytas, Ugur & Akinoglu, Bulent & Nazlioglu, Saban, 2023. "Is there a macroeconomic carbon rebound effect in EU ETS?," Energy Economics, Elsevier, vol. 125(C).
    21. Bao, Xiongjiantao & Zhao, Wenhui & Wang, Xiaomei & Tan, Zhongfu, 2019. "Impact of policy mix concerning renewable portfolio standards and emissions trading on electricity market," Renewable Energy, Elsevier, vol. 135(C), pages 761-774.
    22. Zhang, Xinyue & Guo, Xiaopeng & Zhang, Xingping, 2023. "Assessing the policy synergy among power, carbon emissions trading and tradable green certificate market mechanisms on strategic GENCOs in China," Energy, Elsevier, vol. 278(PB).
    23. Coria, Jessica & Jaraitė, Jūratė, 2023. "Ownership structure and prices: A case study of the Swedish tradable green certificate market," Energy Policy, Elsevier, vol. 183(C).
    24. Hu, Yu & Chi, Yuanying & Zhao, Hao & Zhou, Wenbing, 2022. "The development of renewable energy industry under renewable portfolio standards: From the perspective of provincial resource differences," Energy Policy, Elsevier, vol. 170(C).
    25. Hugo Morais & Tiago Pinto & Zita Vale, 2020. "Adjacent Markets Influence Over Electricity Trading—Iberian Benchmark Study," Energies, MDPI, vol. 13(11), pages 1-22, June.

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    More about this item

    Keywords

    Renewable energy; Electricity; Green certificates; Emissions trading;
    All these keywords.

    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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