Tradable white certificates: experiences and perspectives

The term white certificates refers to policy schemes that combine an end-use energy efficiency obligation on energy companies with a trading option.After summarizing its rationale, the paper focuses on the major issues and challenges in designing and administering a white certificates mechanism based on the comparison of the major active national schemes that emerged from the dedicated 2010 IEPEC panel session.     

Interactions of white certificates with other policy instruments in Europe

In a tradable white certificate (TWC) scheme, each certificate issued represents a certain amount of energy saved. Used in conjunction with an energy-saving obligation on certain parties in the energy supply chain and with rules for trading, monitoring and verification established, an efficient market for energy savings in sectors not covered by the European Union (EU) Emissions Trading Scheme can be established. However, a plethora of other mechanisms are already in place to promote a more sustainable use of energy in Europe. This paper analyses the interactions (both potential and realised in existing schemes) between TWCs and other policy instruments including tradable green certificates, the European Union Emissions Trading Scheme, the European Union Energy Performance in Buildings Directive as well as taxes, subsidies and loans. Measures implemented through a TWC scheme that reduce the consumption of electricity can make targets under a tradable green certificate scheme easier to attain. Where a tradable green certificate scheme contains relative targets, the target should be increased to achieve the same absolute amount of renewable power. A TWC scheme can also reduce the number of allowances electricity generators will need to surrender under the EU Emissions Trading Scheme. By reducing the available emission rights in the National Allocation Plans, this effect is possible to counteract.

Direct benefits and costs of regulating automobile gas mileage

This paper describes an analysis of the direct economic benefits and costs of regulating automobile gas mileage. Three issues are considered: (i) What are the marginal direct benefits and costs of alternatives to the existing 1980–1985 schedules for achieving improved gas mileage? (ii) How are the direct benefits of regulating automobile gas mileage distributed? (iii) What are the marginal direct benefits and costs of regulatory increases in automobile gas mileage beyond the 27·5 miles per gallon standard established for 1985?     

Environmental benefits and the economics of UK solar energy schemes

The use of solar energy to displace conventional fuels gives rise to benefits from resource saving and also from avoided adverse environmental effects. On the assumption that the displaced fuel is coal-generated electricity, this paper estimates the health benefits from avoided air pollution attributable to using solar panels for domestic water and space heating in the UK. These benefits are compared with those stemming from fuel savings. It is found that the environmental benefits, while non-trivial, are small in relation to the resource-saving benefits. All the benefit estimates considered are crude, and there is a clear need for further work in this area.     

Tradable white certificate schemes: fundamental concepts

A number of European countries have introduced market-based instruments to encourage investment in energy efficiency improvement and achieve national energy savings targets. Some of these schemes are based on quantified energy savings obligations imposed on energy distributors or suppliers, coupled with a certification of the energy savings (via white certificates), and a possibility to trade certificates. The paper describes the concept and the main elements of a tradable white certificate scheme, where appropriate giving examples from existing schemes in Europe. It discusses design and operational features that are key to achieve the overall savings targets, such as delineation of the scheme in terms of obliged parties, eligible projects and technologies, institutional structure, and processes to support the scheme, such as measurement and verification. Finally, the paper looks at a number of open issues, most importantly the possibility of creating a voluntary market for white certificates via integration into the carbon market.

Wind power planning: assessing long-term costs and benefits

In the following paper, a new and straightforward technique for estimating the social benefit of large-scale wind power production is presented. The social benefit is based upon wind power's energy and capacity services and the avoidance of environmental damages. The approach uses probabilistic load duration curves to account for the stochastic interaction between wind power availability, electricity demand, and conventional generator dispatch. The model is applied to potential offshore wind power development to the south of Long Island, NY. If natural gas combined cycle and integrated gasifier combined cycle (IGCC) are the alternative generation sources, wind power exhibits a negative social benefit due to its high capacity cost and the relatively low emissions of these advanced fossil-fuel technologies. Environmental benefits increase significantly if charges for CO₂ emissions are included. Results also reveal a diminishing social benefit as wind power penetration increases. The dependence of wind power benefits on CO₂ charges, and capital costs for wind turbines and IGCC plant is also discussed. The methodology is intended for use by energy planners in assessing the social benefit of future investments in wind power.     

Measuring the benefits and costs of utility conservation and load management programmes

We have learned much less than we could have from utility operation of conservation and load management programmes. Our general ignorance concerning the performance (ie benefits and costs) of these programmes exists because we have not devoted sufficient resources to careful evaluations of past and present programmes. We need to build evaluation into the programme planning and implementation process and we should use actual electricity and gas bills to measure programme performance. Finally, we should conduct well designed experiments to learn what does and does not work.     

A multi-criteria evaluation framework for tradable white certificate schemes

Recent years have witnessed regained political momentum on energy efficiency and interest in establishing markets is growing. As a result, Tradable White Certificate (TWC) schemes of differing design have been implemented in Great Britain, Italy and France. Much attention is being paid to justifying and evaluating such schemes. In this paper, we develop and apply a multi-criteria framework for evaluating TWC schemes—an approach that attempts to cover their individual design features. A broad evaluation is conducted regarding energy-saving and environmental effectiveness, economic efficiency, cost-effectiveness, transaction costs, political feasibility, administrative burden and technical change. The results show the design and performance of TWC schemes to be case and context-specific, and generalisations are thus inappropriate. This evaluation supports the cost-effectiveness modelled for the British scheme and the assumption that a TWC scheme is an economically efficient policy instrument. For the other, more complex TWC schemes, more data and experience are needed to judge their ex-post merit. On the whole, the proposed multi-criteria evaluation requires considerable data and complementary methods. However, the framework improves the understanding of the broad effects and attributes of TWC schemes. It deals with various empirical and normative aspects that can be applied in their evaluation.     

Transaction costs of Tradable White Certificate schemes: The Energy Efficiency Commitment as case study

This paper analyses the nature and scale of transaction costs (TCs) borne by obliged parties under a “Tradable White Certificate” (TWC) scheme. Taking the first phase of the Energy Efficiency Commitment (EEC1) in Great Britain as a case study, several sources of TCs were considered, such as search for information, persuasion of customers, negotiation with business partners, and measurement and verification activities. Information was obtained through interviews and a questionnaire distributed to obliged parties. Results show that the most significant sources of TCs were related to search for information, persuading customers and negotiating with managing agents/contractors to implement energy efficiency measures. Perceived high TCs related to contract negotiation and liability risks slightly reduced the low trading level. The scale of TCs was estimated to be around 10% and 30% of total investments costs for the lighting and insulation segments, respectively. The results indicate that, despite the presence and scale of TCs, the EEC1 scheme generated energy savings that yielded net societal benefits. Estimated financial benefits range from 0.6 to 6 p/kWh for insulation and lighting savings, respectively. When avoided external costs due to electricity savings are included, estimated economic benefits range from 3 to 8 p/kWh. Several lessons from the EEC1 can be drawn for TWC schemes. Among others, it is found that informative policy instruments to raise awareness among end-users are critical if a TWC scheme is to deliver cost-effective energy savings. In all, the nature and scale of TCs under TWC schemes will differ because of a number of endogenous and exogenous determinants.     

Internalizing carbon costs in electricity markets: Using certificates in a load-based emissions trading scheme

Several western states have considered developing a regulatory approach to reduce greenhouse gas (GHG) emissions from the electric power industry, referred to as a load-based (LB) cap-and-trade scheme. A LB approach differs from the traditional source-based (SB) cap-and-trade approach in that the emission reduction obligation is placed upon Load Serving Entities (LSEs), rather than electric generators. The LB approach can potentially reduce the problem of emissions leakage, relative to a SB system. For any of these proposed LB schemes to be effective, they must be compatible with modern, and increasingly competitive, wholesale electricity markets. LSE's are unlikely to know the emissions associated with their power purchases. Therefore, a key challenge for a LB scheme is how to assign emissions to each LSE. This paper discusses the problems with one model for assigning emissions under a LB scheme and proposes an alternative, using unbundled Generation Emission Attribute Certificates. By providing a mechanism to internalize an emissions price signal at the generator dispatch level, the tradable certificate model addresses both these problems and provides incentives identical to a SB scheme.     

Voluntary agreements with white certificates for energy efficiency improvement as a hybrid policy instrument

In this paper we examine the implementation of a combined policy scheme that consists of a traditional instrument, the voluntary agreements (VAs), and an innovative one, the white certificates (WhC). The basic structure of this scheme is that energy suppliers who undertake an energy efficiency obligation under a white certificate scheme can make use of voluntary actions to enhance investments in innovative energy savings projects. Energy suppliers and other market parties can additionally or in parallel participate in voluntary agreements and set energy efficiency targets. For fulfilling their voluntary agreement target, these market parties can receive tax exemptions or receive white certificates that they can sell in the market. Transaction costs and baseline definition for demonstrating energy efficiency improvement deserve special attention. This policy can assist a country to enhance energy efficiency improvement while it stimulates innovation. Cost effectiveness can be higher than the case of stand-alone policy instruments, since more financing options are available for more expensive projects. Nevertheless, the added value of the scheme lies more in the implementation of innovative measures for enhanced energy efficiency. Furthermore, market parties can discover more business opportunities in energy efficiency and establish a green image; hence an integrated scheme should achieve higher political acceptability.     

The costs and benefits of large-scale solar photovoltaic power production in Abu Dhabi,United Arab Emirates

The potential for a 10 MW photovoltaic power plant in Abu Dhabi is examined in this paper using RETScreen modeling software to predict energy production, financial feasibility and GHG emissions reductions. Initial results show high energy production potential, generating 24 GWh and saving over 10,000 tons of GHG emissions annually, but poor financial prospects yielding a net present value (NPV) of ?$51 million. Benefits of reducing GHG and air pollution emissions by replacing natural gas with PV generation are calculated to have a net present value of $47 million, with a large range of possible values. Results show that the high initial costs and low expected price for electricity generated are driving reasons why photovoltaic systems are not being implemented in Abu Dhabi. A feed-in tariff rate of $0.16/kWh is recommended to make large-scale PV systems profitable.     

Resource of energy efficiency in Russia: scale, costs, and benefits

This paper considers Russian economy-wide energy efficiency potential by sectors and energy carriers. The assessment shows that Russian technical energy efficiency potential exceeds 45% of 2005 primary energy consumption or 294 mtoe (excluding associated gas flaring). This is about the annual primary energy consumption in France, the UK, or Ukraine, half of that in Japan, and over 2% of the global primary energy consumption. Related CO₂ emission reduction potential is 50% of the Russian 2005 emission. Special attention is given to methodological issues in aggregating potentials identified in final energy use and to the evaluation of indirect energy efficiency gains. This study found that the energy efficiency potential doubles, if associated reduction of energy use, as well as technology progress, in energy production and transformation are accounted for. Cost curves for energy efficiency improvements were developed using the incremental cost approach to identify the cost-effective part of the potential.     

Strategies for compensating for higher costs of geothermal electricity with environmental benefits

After very high growth in the 1980s, geothermal electricity production has slowed in the mid- and late-1990s. While Japanese, Indonesian and Philippine geothermal growth has remained high as a consequence of supportive government policies, geothermal electricity production has been flat or reduced in much of Europe and North America. Low prices for coal and natural gas, combined with deregulation, means that in much of the world electricity from new fuel-burning electricity plants can be provided at half the cost of new geothermal electricity. Cost-cutting must be pursued, but is unlikely to close the price gap by itself. Geothermal production is widely perceived as being environmentally clean, but this is not unambiguously true, and requires reinjection to be fully realized. Strategies for monetizing the environmental advantages of geothermal, including the carbon tax, are discussed.     

Consistency of the French white certificates evaluation system with the framework proposed for the European energy services

According to the directive on energy end-use efficiency and energy services (ESD), the European Member States shall adopt a national indicative energy savings target of 9% (or beyond) in 2016. The issue of the energy savings evaluation is crucial for its implementation. The French White Certificates (FWC) scheme is one of the important measures for France to fulfill its ESD target. However, the accountings of energy savings in the FWC scheme and in the ESD are different. Therefore, an analysis of the consistency of the two systems is needed. A concrete example of actions on residential buildings is used to illustrate the challenges for policy marker and stakeholders to set harmonized evaluation rules. The FWC and ESD calculations appear to be consistent from a physics point of view, as long as calculations are well-documented. But due to differences in the policy objectives, calculation routines may be necessary to convert national energy savings unit (e.g., kWh cumac) into supranational energy savings unit (e.g., ESD kWh). Finally, the work done to establish a transparent evaluation system brings additional benefits (e.g., increased visibility and quality of the actions), which will improve the results of the energy efficiency policies on long term.     

Emission trading schemes: potential revenue effects, compliance costs and overall tax policy issues

The case for the imposition of carbon (emission) taxes or tradable carbon permits in important tax jurisdictions is arguably strong, based upon the polluter pays principle first proposed by Pigou almost a century ago. This paper briefly reviews the arguments for and against these market-based instruments, and discusses their relative advantages and disadvantages in a practical context. In the case of Australia, the revenue effect of the proposed tradable carbon permits scheme is estimated to be A$11.5 billion in 2010–11. For comparison, this is roughly equivalent to a quarter of the revenue from the Goods and Services Tax. The paper focuses on three neglected aspects of climate change taxation discussion to date: how much tax revenue is likely to be raised, and the administrative and compliance costs of an emissions trading scheme, with particular reference to Australia. In discussing these issues, the paper draws upon selected and relevant international experience, particularly the European Union emissions trading scheme. The challenges of an emissions trading scheme, including integration with the existing tax system, particularly in an Australian context, are also discussed. The paper concludes by emphasising the key challenges and issues facing this ‘ultimate externality’ debate, particularly from a taxation policy perspective.     

Greenhouse gas reduction benefits and costs of a large-scale transition to hydrogen in the USA

Hydrogen is an energy carrier able to be produced from domestic, zero-carbon sources and consumed by zero-pollution devices. A transition to a hydrogen-based economy could therefore potentially respond to climate, air quality, and energy security concerns. In a hydrogen economy, both mobile and stationary energy needs could be met through the reaction of hydrogen (H₂) with oxygen (O₂). This study applies a full fuel cycle approach to quantify the energy, greenhouse gas emissions (GHGs), and cost implications associated with a large transition to hydrogen in the United States. It explores a national and four metropolitan area transitions in two contrasting policy contexts: a “business-as-usual” (BAU) context with continued reliance on fossil fuels, and a “GHG-constrained” context with policies aimed at reducing greenhouse gas emissions. A transition in either policy context faces serious challenges, foremost among them from the highly inertial investments over the past century or so in technology and infrastructure based on petroleum, natural gas, and coal. A hydrogen transition in the USA could contribute to an effective response to climate change by helping to achieve deep reductions in GHG emissions by mid-century across all sectors of the economy; however, these reductions depend on the use of hydrogen to exploit clean, zero-carbon energy supply options.     

Estimating national costs, benefits, and potential for cellulosic ethanol production from forest thinnings

Since 2004, wildfires have been responsible for the destruction of 3.5 million hectares of forestland per year. Fuel reduction activities such as prescribed fires, cutting and burning in situ, and biomass removal (thinning) have been shown to reduce wildfire severity, but with mounting costs of fighting wildfires and a tightening budget, public agencies such as the USDA Forest Service may find it difficult to continue funding these preventative treatments. By using thinned biomass as a cellulosic ethanol feedstock, these agencies may be able to generate funds for these treatments. Here, we estimate costs of producing cellulosic ethanol from forest thinnings based on forest thinning supply curves. Nationally, 27 to 34 million Mg of biomass could be removed from overcrowded forests per year at collection costs of $55 to $110 per dry Mg. Given a mature cellulosic ethanol industry, ethanol produced from these thinnings could generate revenue at gasoline prices of $0.5 to $0.8 per liter. By using thinned biomass as an ethanol feedstock, it may be possible to generate significant funds for socially beneficial thinning treatments.     

Future regional nuclear fuel cycle cooperation in East Asia: Energy security costs and benefits

Economic growth in East Asia has rapidly increased regional energy, and especially, electricity needs. Many of the countries of East Asia have sought or are seeking to diversify their energy sources and bolster their energy supply and/or environmental security by developing nuclear power. Rapid development of nuclear power in East Asia brings with it concerns regarding nuclear weapons proliferation associated with uranium enrichment and spent nuclear fuel management. This article summarizes the development and analysis of four different scenarios of nuclear fuel cycle management in East Asia, including a scenario where each major nuclear power user develops uranium enrichment and reprocessing of spent fuel individually, scenarios featuring cooperation in the full fuel cycle, and a scenario where reprocessing is avoided in favor of dry cask storage of spent fuel. The material inputs and outputs and costs of key fuel cycle elements under each scenario are summarized.     

Measuring the environmental benefits of hydrogen transportation fuel cycles under uncertainty about external costs

In this paper, we attempt to measure the environmental benefits of hydrogen deployment in the transportation sector. We compare the hydrogen pathways to the conventional transportation fuel cycles in terms of external costs, estimated using the results of the most accurate methodologies available in this field. The central values of performed analysis bring us ambiguous results. The external cost of the best conventional solution (“oil to diesel hybrid internal-combustion engine”) in some cases is just higher and in others just lower than that of the best fossil fuel to hydrogen solution (“natural gas to hydrogen fuel cell”). Nevertheless, by accounting for the uncertainty about external costs, we are able to remove this ambiguity highlighting that the hydrogen pathway provides significant environmental benefits ,especially in densely populated areas, assuming 100% city driving.