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

Amundsen, Eirik S. and Nese, Gjermund (2004): Market Power in Interactive Environmental and Energy Markets: The case of Green Certificates.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: renewable energy; electricity; Green Certificates; market power
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q28 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory; A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics > A21 - Pre-college

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