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

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  • Eirik S. Amundsen
  • Gjermund Nese

Abstract

Markets for environmental externalities are typically closely related to the markets causing such externalities, whereupon strategic interaction may result. Along these lines, the 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. In this paper, we formulate an analytic equilibrium model for simultaneously functioning electricity and TGC markets, and focus on the role of market power. We consider a Stackelberg leadership model with endogenous treatment of the interaction between the electricity and the TGC markets. One result is that a certificate system faced with market power may collapse into a system of per unit subsidies as the producers involved take account of the joint functioning of markets. Furthermore, our analytical model shows that TGCs may be an imprecise instrument for regulating the generation of green electricity.

Suggested Citation

  • Eirik S. Amundsen & Gjermund Nese, 2016. "Market Power in Interactive Environmental and Energy Markets: The Case of Green Certificates," CESifo Working Paper Series 5922, CESifo.
    • Handle: RePEc:ces:ceswps:_5922
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    References listed on IDEAS

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    6. 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.
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    10. 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.
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    Cited by:

    1. 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).
    2. Ganhammar, Kajsa, 2023. "Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates," Working Papers 2023:8, Lund University, Department of Economics.

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    More about this item

    Keywords

    renewable energy; electricity; Green Certificates; market power;
    All these keywords.

    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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