The Influence of Banking and Borrowing under Different Penalty Regimes in Tradable Green Certificate Markets – Results from an Experimental Economics Laboratory Experiment

The authors wish to acknowledge the important contributions to this article, through discussions or precise comments, made by Claudine de Zoeten-Dartenset, Walter Ruijgrok, Angus McPherson and Chris Crookall-Fallon.

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A Package Recovery Note is a proof that a certain amount of waste material has been recycled. These PRNs are used in the UK by waste material producing companies to comply to their obligation to recycle a certain percentage of their waste material. The PRNs are tradable. A spot market for PRNs exists and is managed by OM Environmental Exchange.

The experiment was as part of the European Renewable Energy Certificate Trading Project (RECerT). This project is partially financed as an Accompanying Measure within the 5th Framework Program of the European Commission.

These technologies were wind in coastal areas, wind inland, wind offshore, large biomass, small biomass and solar electricity.

The correction was equal to half the standard deviation from the average price in the foregoing period.

The statistics on the distribution of IRRs for investments in Danish wind turbines has kindly been provided by Poul-Erik Morthorst of Risoe National Laboratory.

The experiement was designed in such a way that a penalty of n Eurocent/unit = n Eurocent/kWh

The equilibrium was estimated to be 6.8 Eurocent/unit on beforehand. This was done by calculating the unit production cost of the marginal technology with the average (15% IRR) investment criterion. During the experiment a ‘perfect’ run in which supply and demand matched perfectly, showed that the equilibrium price was a little bit lower (about 6.5 Eurocent/unit).