Tradable Certificates for Energy Efficiency: The Dawn of a New Trend in Energy Policy?

Paolo Bertoldi, European Commission, Directorate General JRC
Silvia Rezessy, Central European University

Keywords

Abstract

Tradable green certificate (TGC) schemes have been developed and tested in several countries to foster market-driven penetration of renewable energy sources. Another well-known and widely analysed type of market–based instrument is the tradable CO2 permit. The first international CO2 emission trading scheme will soon start in the European Union (EU). Recently the attention of policy makers has been attracted by the possibility of introducing tradable certificates for energy savings (TCES) to stimulate energy efficiency investments and achieve national energy efficiency targets. TCES schemes have been recently introduced in Italy and the UK. However, there is a debate over the effectiveness and applicability of this instrument.

The paper describes the concept of a TCES scheme in the EU policy context. It discusses the main elements of a TCES scheme: the creation of the market and of the demand (eligible actions and technologies), the trading rules (validity of certificates, banking, borrowing), the possible cost-recovery mechanisms, and institutional infrastructure and processes to support the scheme (measurement and verification, penalty for non-compliance). The paper compares the TCES, a.k.a. white certificate, scheme with other similar policy tools such as an energy tax and mandatory demand-side management (DSM) programs on the following criteria: (a) certainty of outcome; (b) economic efficiency; (c) information requirements for the establishment and implementation; and (d) institutional costs. Finally, the paper discusses the possible integration with green certificates and CO2 emissions trading schemes.