Are tradable green certificates a cost-efficient policy driving technical change or a rent-generating machine? Lessons from Sweden 2003–2008

Abstract

In the European policy debate, tradable green certificates (TGC) have been suggested to be a superior regulatory framework for promoting the diffusion of renewable electricity technologies. The purpose of this paper is to assess the performance of the Swedish TGC system, contributing to the European debate on the suitability of different types of frameworks. The expectations of the TGC system were that it would: a) be effective in terms of increasing the supply of "green" electricity; b) do this in a cost effective manner (from both a social and a consumer perspective); c) generate an equitable distribution of costs and benefits and d) drive technical change. So far, it has performed adequately in terms of effectiveness and social cost effectiveness. However, consumer costs have been substantially higher than expected, very large rents are generated and, at best, it contributes marginally to technical change. Thus, a TGC framework should be selected if the overriding concern is to minimize short term social costs of reaching a certain goal with a high degree of predictability. However, it cannot be expected to also drive technical change, keep consumer costs down and be equitable. Such trade-offs need to be revealed and not obscured by analysts.

Carbon Lock-Out: Advancing Renewable Energy Policy in Europe

“…In contrast, quotas promote primarily those technologies which are closest to the market, and can bring about large rents for these technologies [32,37,38]. In the Swedish tradable certificate scheme, observed rents amounted to as much as 55-75% of the overall remuneration paid to electricity producers [39]. The non-differentiation between construction dates under quota systems also leads to a "dynamic disincentive to invest" in learning technologies: If a technology benefits from learning-by-doing and suffers from spillovers, there is a strong incentive to postpone an investment [25,37,40].…”

The impact of environmental policy instruments on innovation: A review of energy and automotive industry studies

“…The system has not encouraged the development of technologies which in the UK are seen as promising options for the future, such as offshore wind, solar cells and wave/tidal power, since they are too expensive and/or considered too risky (Butler and Neuhoff, 2008). The Swedish electricity certificate system came into force in 2003 and, similar to the UK system, has primarily benefited actors who invest in relatively mature technologies; in 2008, for example, 70% of the renewable production in the system consisted of biomass-based electricity production in industrial back-pressure plants and combined heat and power plants, whereas novel technologies found it hard to compete within the TGC regime (Bergek and Jacobsson, 2010). The outcome of the TGC system in Flanders is similar.…”

Renewable Energy Technology—Is It a Manufactured Technology or an Information Technology?

“…The key economies this policy leverages are those of static economy of scale at the CoPS project level and dynamic economy of scale at the equipment level. Equally important is an efficient tradable certificate market [35].…”