TEL  Vol.2 No.2 , May 2012
A Preliminary Investigation of the Optimal Percentage Requirement in an Electricity Market with Tradable Green Certificates
Abstract: Around the world, energy markets are being liberalized with the goal of achieving fully competitive markets while at-taining environmental policy objectives. This paper considers a system of Tradable Green Certificates (TGCs)—a mar-ket based regulatory instrument designed to promote electricity generation from renewable energy sources. In a TGC program, the principal policy instrument is the “percentage requirement” which stipulates the percentage of total elec-tricity generation that must be obtained from renewable sources. This paper provides a preliminary investigation of the socially optimal choice of the percentage requirement in a Cournot duopoly setting. The paper discusses the problem geometrically and considers some of the practical difficulties associated with the determination of the optimal percent-age requirement. Several important avenues for generalization of the results are also discussed.
Cite this paper: K. Currier and S. Rassouli-Currier, "A Preliminary Investigation of the Optimal Percentage Requirement in an Electricity Market with Tradable Green Certificates," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 216-220. doi: 10.4236/tel.2012.22039.

[1]   E. S. Amundsen and J. B. Mortensen, “The Danish Green Cer-tificate System: Some Simple Analytical Results,” Energy Economics, Vol. 23, No. 5, 2001, pp. 489-509. doi:10.1016/S0140-9883(01)00079-2

[2]   E. S. Amundsen and G. Nese, “Integration of Tradable Green Certificate Mar-kets. What Can Be Expected?” Journal of Policy Modeling, Vol. 31, No. 6, 2009, pp. 903-922. doi:10.1016/j.jpolmod.2009.09.002

[3]   A. Ford, K. Vogstad and H. Flynn, “Simulating Price Patterns for Tradable Green Certificates to Promote Electricity Generation from Wind,” Energy Policy, Vol. 35, 2007, pp. 91-111. doi:10.1016/j.enpol.2005.10.014

[4]   C. Bohringer and K. E. Rosendahl, “Green Promotes the Dirtiest: On the Interaction between Black and Green Quotas in Energy Markets,” Journal of Regulatory Economics, Vol. 37, No. 3, 2010, pp. 316-325. doi:10.1007/s11149-010-9116-1

[5]   V. Dinica and M. J. Ar-entsen, “Green Certificate Trading in the Netherlands in the Prospect of the European Electricity Market,” Energy Policy, Vol. 31, No. 7, 2003, pp. 609-620. doi:10.1016/S0301-4215(02)00146-5

[6]   M. M. Tamas, S. O. B. Shrestha and H. Zhou, “Feed in Tarriff and Tradable Green Certificates in Oligopoly,” Energy Policy, Vol. 38, 2010, pp. 4040-4047. doi:10.1016/j.enpol.2010.03.028

[7]   A. Bergek and S. Jacobsson, “Are Tradable Green Certificates a Cost—Efficient Policy Driving Technical Change or a Rent—Generating Ma-chine? Lessons from Sweden 2003-2008,” Energy Policy, Vol. 38, No. 3, 2010, pp.1255-1271. doi:10.1016/j.enpol.2009.11.001

[8]   G. Heal, “Planning, Prices and Increasing Returns,” Review of Economic Studies, Vol. 38, 1971, pp. 281-294. doi:10.2307/2296382

[9]   M. Weitzman, “Iterative Multilevel Planning with Production Targets,” Econometrica, Vol. 38, No. 1, 1970, pp. 50-65. doi:10.2307/1909240

[10]   J. Cremer, “A Quantity—Quantity Algorithm for Planning under Increasing Returns,” Econometrica, Vol. 45, No. 6, 1977, pp. 1339-1348. doi:10.2307/1912303

[11]   C. Bohringer, H. Koschel and U. Moslener, “Efficiency Losses from Overlapping Regulation of EC Carbon Emissions,” Journal of Regulatory Economics, Vol. 33, No. 3, 2008, pp. 299-317. doi:10.1007/s11149-007-9054-8

[12]   E. S. Amundsen, F. M. Baldursson and J. B. Mortensen, “Price Volatility and Banking in Green Certificate Markets,” Environmental and Resource Economics, Vol. 35, No. 4, 2006, pp. 259-287. doi:10.1007/s10640-006-9015-1

[13]   L. Neilsen and T. Jeppe-sen, “Tradable Green Certificates in Selected European Coun-tries—Overview and Assessment,” Energy Policy, Vol. 31, No. 1, 2003, pp. 3-14.