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Market power in interactive environmental and energy markets: The case of green certificates

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Abstract

A market for Tradable Green Certificates (TGCs) is strongly interwoven in the electricity market as the producers of green electricity are also the suppliers of TGCs. Therefore, strategic interaction may result. We formulate an analytic equilibrium model for simultaneously functioning electricity and TGC markets, and focus on the role of market power (i.e. Stackelberg leadership). One result is that a certificate system faced with market power may collapse into a system of per unit subsidies. Also, the model shows that TGCs may be an imprecise instrument for regulating the generation of green electricity.

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  • Amundsen, Eirik Schrøder & Nese, Gjermund, 2016. "Market power in interactive environmental and energy markets: The case of green certificates," Working Papers in Economics 04/16, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2016_004
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    References listed on IDEAS

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    1. Amundsen, E.S. & Mortensen, J.B., 2001. "The Danish Green Certificate System: Some Simple Analytical Results," Norway; Department of Economics, University of Bergen 226, Department of Economics, University of Bergen.
    2. repec:aen:journl:2009se-climate-change-a06 is not listed on IDEAS
    3. Olsen, Ole Jess & Amundsen, Eirik S. & Donslund, Bjarne, 2006. "How to play the game as the bridge between two European power markets--the case of Western Denmark," Energy Policy, Elsevier, vol. 34(17), pages 3293-3304, November.
    4. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2002. "Erratum to "The Danish Green Certificate System: some simple analytical results": [Energy Economics 23 (2001) 489-509]," Energy Economics, Elsevier, vol. 24(5), pages 523-524, September.
    5. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    6. Juan-Pablo Montero, 2009. "Market Power in Pollution Permit Markets," Working Papers 0906, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    7. Christoph Böhringer & Knut Rosendahl, 2010. "Green promotes the dirtiest: on the interaction between black and green quotas in energy markets," Journal of Regulatory Economics, Springer, vol. 37(3), pages 316-325, June.
    8. Amundsen, Eirik S. & Nese, Gjermund, 2009. "Integration of tradable green certificate markets: What can be expected?," Journal of Policy Modeling, Elsevier, vol. 31(6), pages 903-922, November.
    9. repec:aen:journl:33-2-05 is not listed on IDEAS
    10. 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.
    11. Butler, Lucy & Neuhoff, Karsten, 2008. "Comparison of feed-in tariff, quota and auction mechanisms to support wind power development," Renewable Energy, Elsevier, vol. 33(8), pages 1854-1867.
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    Cited by:

    1. Ganhammar, Kajsa, 2023. "Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates," Working Papers 2023:8, Lund University, Department of Economics.
    2. Hui, Wang & Xin-gang, Zhao & Ling-zhi, Ren & Fan, Lu, 2021. "An agent-based modeling approach for analyzing the influence of market participants’ strategic behavior on green certificate trading," Energy, Elsevier, vol. 218(C).

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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - 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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