Price Volatility and Banking in Green Certificate Markets

Eirik S. Amundsen (), Fridrik Mar Baldursson () and Jørgen Birk Mortensen
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Jørgen Birk Mortensen: Institute of Economics, University of Copenhagen

No 05-08, Discussion Papers from University of Copenhagen. Department of Economics

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.

Keywords: electricity; environment; commodity speculation; green certificates; marketable permits; uncertainty (search for similar items in EconPapers)
JEL-codes: Q28 Q42 Q48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-fin and nep-fmk
Date: 2005-07
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Journal Article: Price Volatility and Banking in Green Certificate Markets (2006)
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