Swedish-Norwegian tradable green certificates: Scheme design flaws and perceived investment barriers

The EU Commission recommends using market-based support schemes for renewable-electricity projects. One example is the Swedish-Norwegian tradable green certificate scheme. We examine whether design features in the Norwegian part of this scheme, specifically, the scheme's short duration and the way it is to be abruptly terminated, contribute to investors' perceptions of barriers. We apply econometric techniques on primary data collected in two surveys of Norwegian investors in hydropower, and we use real options theory to predict and interpret investors' responses. We show that: (1) immediately after the scheme was introduced, investors are eager to lock in future subsidies by investing immediately and concerned with factors that may delay the completion of their projects; (2) as the certificate deadline neared, investors have become increasingly pessimistic and concerned with economic and risk barriers. Investors in big hydropower plants with regulation reservoirs are particularly concerned with the risk of not completing their projects in time to gain the right to sell certificates. These findings are consistent with the predicted responses to the scheme design derived from real options theory. In contrast to earlier studies, we find no difference in responses to the scheme design across investor types.