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The impact of price and regulatory uncertainty in green certificate markets: Evidence from the Swedish-Norwegian market

Ganhammar, Kajsa LU (2019) NEKN01 20191
Department of Economics
Abstract
The European Commission favours market-based support policies, such as markets for tradable green certificates, to promote renewable energy. Meanwhile, these markets have received critique for exposing investors to large price risk as the level of support is determined by the market price of certificates. Unstable prices can also result from changes in regulation since the demand for certificates is politically determined. Using econometric techniques and a two-step procedure, this study examines the impact of price and regulatory uncertainty in the Swedish-Norwegian tradable green certificate market. It focuses in particular on how it affects investment decisions, based on a case study of wind power projects in Sweden undertaken between... (More)
The European Commission favours market-based support policies, such as markets for tradable green certificates, to promote renewable energy. Meanwhile, these markets have received critique for exposing investors to large price risk as the level of support is determined by the market price of certificates. Unstable prices can also result from changes in regulation since the demand for certificates is politically determined. Using econometric techniques and a two-step procedure, this study examines the impact of price and regulatory uncertainty in the Swedish-Norwegian tradable green certificate market. It focuses in particular on how it affects investment decisions, based on a case study of wind power projects in Sweden undertaken between 2005 to 2018. The empirical results indicate that: (1) regulatory changes negatively impact certificate markets, resulting in more volatile prices. (2) this has a deterring effect on green investments; a one standard deviation increase in price volatility is estimated to reduce the probability of project development by 12%, consistent with the predictions of real options theory and findings in previous literature. Overall, these findings provide some valuable implications for European policy makers aiming to design efficient and cost-effective future green energy policies. (Less)
Please use this url to cite or link to this publication:
author
Ganhammar, Kajsa LU
supervisor
organization
course
NEKN01 20191
year
type
H1 - Master's Degree (One Year)
subject
keywords
tradable green certificates, price volatility, regulatory uncertainty, green investment, real options theory
language
English
id
8995497
date added to LUP
2019-10-03 14:24:49
date last changed
2019-10-03 14:24:49
@misc{8995497,
  abstract     = {{The European Commission favours market-based support policies, such as markets for tradable green certificates, to promote renewable energy. Meanwhile, these markets have received critique for exposing investors to large price risk as the level of support is determined by the market price of certificates. Unstable prices can also result from changes in regulation since the demand for certificates is politically determined. Using econometric techniques and a two-step procedure, this study examines the impact of price and regulatory uncertainty in the Swedish-Norwegian tradable green certificate market. It focuses in particular on how it affects investment decisions, based on a case study of wind power projects in Sweden undertaken between 2005 to 2018. The empirical results indicate that: (1) regulatory changes negatively impact certificate markets, resulting in more volatile prices. (2) this has a deterring effect on green investments; a one standard deviation increase in price volatility is estimated to reduce the probability of project development by 12%, consistent with the predictions of real options theory and findings in previous literature. Overall, these findings provide some valuable implications for European policy makers aiming to design efficient and cost-effective future green energy policies.}},
  author       = {{Ganhammar, Kajsa}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The impact of price and regulatory uncertainty in green certificate markets: Evidence from the Swedish-Norwegian market}},
  year         = {{2019}},
}