Green, brown, and now white certificates - are three one too many? A micromodel of market interaction

Our paper deals with modeling the effects of introducing a market-based tool for improving end-users' efficiency in an energy market which is already regulated through a cap-and-trade system for green house gas emissions and a quota system meant to improve competitiveness of energy produced using renewable resources. Our results show that the regulation of energy demand achieves its underlying objects of energy savings and energy efficiency solely at the expense of other goals such as the environmental efficiency of energy production. In our model, the implementation of a market for White Certificates (WCTS) causes energy producers' investment in abatement to decrease along with the price for Brown Certificates and the amount of renewable energy demanded. Once we turn to the currently more empirically relevant case of integrating end-users only partially into WCTS, the unregulated group compensates in parts for the decrease in demand of the regulated group, due to an indirect price effect. As both supply and demand side of the market are regulated, this special set of regulations applied can, therefore, be compared to the grip of pincers embracing the entire market, leaving some of it virtually scarred. Consequently, we intended to search for alternative policy measures, which are able to achieve an increase in end-users' energy efficiency without the negative side-effects witnessed in case of a WCTS. In our model a subsidized reduction in the price for households' investment in energy efficiency renders just slightly more favorable results than an implementation of WCTS. However, the most effective way to accomplish all goals of environmental policy alike is to reduce the cap on emissions.