Green certificates in an international market

Abstract

An analytical equilibrium model for a simultaneously functioning electricity market and a market for Green Certificates is formulated. The main focus is on the effects of changing the percentage requirement, which is perceived as the policy instrument affecting the level of green electricity in end use consumption. We start by looking briefly at an autarky market before opening for trade of electricity and certificates. The results show that the percentage requirement is a very imprecise instrument as to increase the provision of green electricity. In none of the cases considered will an increase of the percentage requirement in a country necessarily result in an increase in the generation of green electricity in the country itself. When opening for trade, the results show that the increase of the percentage requirement in one country can have a negative effect on green electricity generation in this country, but a positive effect in the other country. Further it is shown that in the case of an open certificate market where the certificates can be traded at a given international price, a country will maximize it's generation of green electricity by setting the percentage requirement equal to zero.