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

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.renewable energy; electricity; Green Certificates; market power

International Redistribution of Resource Rents: An alternative perspective on the Kyoto process

The purpose of this paper is to elucidate the resource rent distribution aspect of the Kyoto process. The paper focuses on the “battle for resource rents” with oil consuming countries on one side and oil producing countries on the other. Our analysis is carried out within the framework of a theoretical model of resource extraction over time. In particular, it is shown how CO2 emission caps may be used by the oil consuming countries, acting under the realm of the Kyoto process, to maximize the rent acquisition from oil producing countries and how the oil producing countries may constrain this possibility by exercising market power. The paper also compiles data and numerical results regarding the order of magnitudes of resource rents redistribution.Resource rents, environmental taxes, market form

Provision of renewable energy using green certificates: market power and price limits

We formulate an analytic equilibrium model for simultaneously functioning electricity market an a market for Green Certificates. The major focus of the paper is the effect of market power in a Green Certificate system. One of the main results is that the certificate system faced with market power basically may collapse into a system of feed in tariffs.

Integratation of Tradable Green Certificate Markets: What can be expected?

Recently, many countries have introduced systems of tradable green certificates (TGCs) in order to increase the proportion of their electricity supply obtained from renewable sources. The main objective of this paper is to investigate the analytics of a TGC system of the Nordic type when integrated within several countries and to determine what can be expected from the system when applied in a real world setting. Both an analytical and a partial equilibrium version of the model are applied. In particular, we ask whether it is possible to derive analytically clear cut results with respect to how the system affects generation of electricity from renewable resources, and from carbon emitting resources, in the same way as it is possible for other known policy instruments such as an emission permit system or a plain carbon emission tax. A key result is that TGCs may be an imprecise instrument for regulating the generation of green electricity and that the combination of TGCs with a system of tradable emission permits may yield outcomes contrary to the intended purpose.Renewable energy; electricity; green certificates; emissions trading

Provision of Renewable Energy using Green Certificates: Market Power and Price Limits

We formulate an analytic equilibrium model for simultaneously functioning electricity market and a market for Green Certificates. The major focus of the paper is the effect of market power in a Green Certificate system. One of the main results from the analysis is that the certificate system faced with market power basically may collapse into a system of per unit subsidies.Firm Behavior: Theory; Oligopoly and Other Forms of Market Imperfection; Externalities; Redistributive Effects; Environmental Taxes and Subsidies; Production; Pricing; and Market Structure; Size Distribution of Firms; Electric Utilities

Drought and Optimal Groundwater Managment

This paper considers the problem of a water management authority that is faced with the threat of a drought that will take place at an uncertain date. Three management policies are investigated: i) the laissez-faire policy of automatic regulation through Open Access mechanisms, ii) the policy of keeping a rationed level of water usage until the water table is restored, and iii) an economically optimal policy taking account of the probability of a drought and the fact that water is an asset (a stock of natural capital). In particular, it is shown that the optimal pre-drought steady-state stock of water is smaller than the stock that would be optimal in the no-drought case. Hence, no precautionary stock is built up. However, a more extensive drought period will lead to a larger pre-drought steady-state stock.Drought; groundwater; economic management; uncertainty

Regulating groundwater use in developing countries: a feasible instrument for public intervention

In many developing countries, groundwater is a common pool resource which is potentially subject to the tragedy of the commons if water extraction is not adequately regulated. However, in these countries, the regulatory infrastructure is often too weak to allow detailed monitoring of individual groundwater extraction. For this reason, classical public intervention instruments, such as consumption fees or tradable quotas, are infeasible. Here we present a theoretical foundation for a new public regulatory instrument that can potentially generate the same efficiency inducing incentives as fees and tradable quotas, but without their information and monitoring requirements. The instrument we propose is a tax based on aggregate extraction, rather than individual extraction measures.Developing countries, groundwater use, moral hazard problems, taxes

How to play the game as the bridge between two European power markets – the case of Western Denmark

In this paper we set out to investigate the price and quantity fluctuations in Western Denmark, which took place during the winter season 2002-2003. This was a period, which exhibited critical supply conditions in the Nordic area due to a shortage of hydropower. On average, the market in Western Denmark helped to ease the situation by large net exports. However, a more detailed investigation reveals anomalies in market behaviour that do not fit well into this overall positive description of the situation. Several explanations of the anomalies are offered. These may work separately or act in concert. In particular, we look at the large capacity of volatile wind power; the role of the guaranteed fixed prices and the design and functioning of the special auction system of transmission capacity in the interface between Western Denmark and Germany.electricity trade; market power; wind power

Price Volatility and Banking in Green Certificate Markets

There is concern that prices in a market for Green Certificates (GCs) primarily based on volatile wind power will fluctuate excessively, leading to corresponding volatility of electricity prices. Applying a rational expectations simulation model of competitive storage and speculation of GCs the paper shows that the introduction of banking of GCs may reduce price volatility considerably and lead to increased social surplus. Banking lowers average prices and is therefore not necessarily to the benefit of “green producers”. Proposed price bounds on GC-prices will reduce the importance of banking and even of the GC system itself.electricity; environment; commodity speculation; green certificates; marketable permits; uncertainty