Price Volatility and Banking in Green Certificate Markets |
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Authors: | Eirik S Amundsen Fridrik M Baldursson Jørgen Birk Mortensen |
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Institution: | (1) Department of Economics, University of Bergen, Herman Fossgt. 6, 5007 Bergen, Norway;(2) Department of Economics, University of Iceland, Reykjavik, Iceland;(3) Institute of Economics, University of Copenhagen, Copenhagen, Denmark |
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Abstract: | 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.The paper benefited from presentations at Copenhagen University, Stockholm School of Economics and University of Iceland. Thanks are due to Lars Bergman, Torstein Bye, Pauli Murto and participants in the Nordic Energy Research Program (NERP). |
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Keywords: | commodity speculation electricity environment green certificates marketable permits uncertainty |
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