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

Abstract

© Dette eksemplar er fremstilt etter avtale med KOPINOR, Stenergate 1, 0050 Oslo. Ytterligere eksemplarfremstilling uten avtale og i strid med åndsverkloven er straffbart og kan medføre erstatningsansvar. Market power in interactive environmentaland energy markets: The case of Green Certificates * Eirik S. Amundsen and Gjermund Nese † AbstractMarkets for environmental externalities are typically closely related to the markets causing such externalities, whereupon strategic interaction 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 the suppliers of Green Certificates. In this paper, we formulate an analytic equilibrium model for simultaneously functioning electricity and Green Certificate 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 Certificate markets with conjectured price 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 Policy Instruments and Market Power

“…The more recent literature has introduced elements of imperfect competition; however, it has either assumed strategic behavior in the market for electricity only (as in Tamás et al ., ) or it has ignored the impact of conventional generation capacity on the price of certificates (as in Amundsen and Bergman, ). Thereby, the literature has circumvented the knife‐edge problem identified by Amundsen and Nese (), that if green and conventional energy are supplied by Cournot quantity setters, there is no equilibrium unless one introduces exogenous upper and lower bounds on the certificates price . We solve this problem by making the realistic assumption that there exists a segment of producers who adapt their behavior to market prices.…”