Some Implications of Investment Cost Reduction Policies in Energy Markets Employing Green Certificate Systems

摘要

Around the world, green certificate systems are widely employed as support mechanisms for the promotion of renewable energy production. Due to large initial capital costs for renewable energy projects, investment cost reduction policies are often employed by policy makers as complementary support measures. In this note, we study some implications of the use of investment cost reduction policies in an energy market operated under a green certificate system. We demonstrate that, paradoxically, use of (or intensification of) investment cost reduction policies results in increased emissions from fossil fuel ("black") producers. Welfare effects depend on the distribution of costs and benefits to the relevant interest groups. However, if the policy objective requires maintaining a constant level of emissions, investment cost mitigation must be accompanied by a simultaneous upward adjustment in the renewables target.