Price Volatility and Banking in Green Certificate Markets
Eirik S. Amundsen,
Fridrik Mar Baldursson () and
Jørgen Birk Mortensen Additional contact information Eirik S. Amundsen: Department of Economics, University of Bergen
Jørgen Birk Mortensen: Institute of Economics, University of Copenhagen
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.