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Price Volatility and Banking in Green Certificate Markets

  • Eirik Amundsen


  • Fridrik Baldursson
  • Jørgen Mortensen

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. Copyright Springer Science+Business Media, Inc. 2006

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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 35 (2006)
Issue (Month): 4 (December)
Pages: 259-287

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Handle: RePEc:kap:enreec:v:35:y:2006:i:4:p:259-287
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  8. 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.
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