White Certificates for energy efficiency improvement with energy taxes: A theoretical economic model

Oikonomou V., SOM, University of Groningen, The Netherlands
Becchis F., Prof., Environmental Economics, University of East Piedmont, Italy
Russolillo D., Fondazione per l’Ambiente “T. Fenoglio”, Torino, Italy

Keywords

white certificates, carbon taxes, electricity taxes

Abstract

In this paper we analyze interactions of a White Certificates scheme and existing energy taxation. We examine the effect of these policy instruments in the electricity sector, focusing on electricity producers and suppliers in a competitive market. With microeconomic theory we identify the total effect on the electricity price when suppliers internalize producers’ reactions in their profit maximization decisions. The cases examined consist of electricity producers with carbon tax, electricity suppliers with sales tax and WhC obligations. Furthermore, we present a parallel implementation of WhC for electricity suppliers with carbon tax on producers, and a sales tax with WhC obligations to electricity suppliers. In addition, the paper analyzes the markets of energy efficiency projects and of White Certificates. The aim of this analysis is to discover the policy elements that affect the final price of electricity purchased by end-users. A basic finding is that in a merit order several parameters of these policies can increase final electricity price: demand for electricity and electricity supply cost at a large scale, followed by the level of sales tax, actual level of electricity sales, level of obligation for energy saving, and price of WhC (marginal costs of energy efficiency projects). The magnitude of impacts depends on values chosen and on initial positions of suppliers (if their actual behaviour deviates from full target compliance).