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Market Power in Interactive Environmental and Energy Markets: The case of Green Certificates

  • Amundsen, Eirik S.
  • Nese, Gjermund
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    Markets for environmental externalities are typically closely related to the markets causing such externalities, whereupon strategic interactions may result. Along these lines, the market for Green Certificates is strongly interwoven in the electricity market as the producers of green electricity are also suppliers of Green Certificates. In this paper, we formulate an analytic equilibrium model for simultaneously functioning electricity and Green Certificates markets, and focus on the role of market power. We consider two versions of a Nash-Cournot game; a standard Nash-Cournot game where the players treat the market for Green Certificates and the electricity market as separate markets; and a Nash-Cournot game with endogenous treatment of the interaction between the electricity and Green Certificates markets with conjectured responses. One result is that a certificate system faced with market power may collapse into a system of per unit subsidies, as the producers involved start to game on the joint functioning of markets.

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    File URL: http://mpra.ub.uni-muenchen.de/10559/1/MPRA_paper_10559.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10559.

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    Date of creation: 2004
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    Handle: RePEc:pra:mprapa:10559
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    1. Severin Borenstein & James Bushnell, 1998. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," NBER Working Papers 6463, National Bureau of Economic Research, Inc.
    2. 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.
    3. 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.
    4. Borenstein, Severin & Bushnell, James & Knittel, Chris, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," Staff General Research Papers 31548, Iowa State University, Department of Economics.
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