Green certificate trading

 

 

Kerri Brick; Martine Visser

 

 

Full text available in PDF

 

References

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1 The Kyoto Protocol was adopted on 11 December 1997 and entered into force in February 2005 (UNFCCC, 1997)
2 The current scenario of no quantified mitigation commitments is likely to change by then end of 2009. COP-15 in Copenhagen are expected to agree on 'measurable, reportable and verifiable' mitigation actions for developing countries, supported and enabled by technology and finance from developed countries.
3 CO2, CH4, N20, PFCs, HFCs and SF6 (CAIT, 2009)
4 'Renewable electricity' is used in this report as a short-hand for electricity generated from renewable energy sources. Electricity is an energy carrier, and not renewable or non-renewable in itself; it depends on the energy sources that is used to generate electricity.
5 The following hypothetical example illustrates the dynamic of a quota obligation system: Assume the electricity market consistent of generators, suppliers and customers. Generators sell their electricity to suppliers who in turn sell it to customers. Assume that 6 percent of supplied electricity must be renewable. In this example, all electricity suppliers must prove to the authorities that they have met this obligation by producing TRECs at year-end - one certificate for each MegaWatt hour (MWh) of electricity sold. A supplier who sold 1 000 000 MWh of electricity during the specified period would have a renewable obligation of 60 000 MWh. If the supplier fails to meet this obligation, he or she will likely have to pay a fine for every MWh sold that was not renewable. If the supplier failed to supply any renewable electricity and the fine was R100, he would be fined R6 million. It thus becomes very expensive not to comply with the renewable energy target. (REF, 2008)
6 This system depends on the consumers' willingness to pay (WTP) for renewable electricity. The WTP differs from country to country and is influenced by factors such as environmental awareness (Linden et al, 2005).
7 As per the convention in the literature, a quota obligation scheme operated in conjunction with tradable green certificates is considered a quantity-based policy mechanism. However, we consider pure green certificate trading schemes (with no quota obligation) such as the Renewable Energy Certificate System operating in Europe to be a hybrid of price and quantity-based instruments.
8 It is important to note that RPS designs vary substantially across states.
9 The possibility of international trade in certificates is an important feature of the TREC approach. The possibility for international trade implies that renewable technologies will be developed in those countries with the greatest production potentials and where renewable electricity can be produced at least cost. Countries with a surplus of TRECs in relation to national quotas can export certificates to those countries experiencing a shortage. As such, international trade can ensure that national renewable electricity targets are reached in the most cost-efficient way (Morthorst, 2001).
10 This approach can be problematic when the TREC system is implemented internationally. In this case the TREC price is determined at the international level while the additional technology specific support is set at the national level. As such, countries that provide less additional support benefit from the international TREC price (Ragwitz et al, 2006).
11 'The model is based on the German input-output table of the year 2004... which identifies 71 industries and commodities. Furthermore, the German statistical office provides energy flows and emissions of the German economy... which are used to construct physical energy flows corresponding to value flows of the input-output table and carbon emissions' (Abrell and Weigt: 8).