Vertical Integration in Tradable Green Certificate Markets

56 Pages Posted: 30 Apr 2024

See all articles by Jessica Coria

Jessica Coria

Department of Economics, University of Gothenburg

Jurate Jaraite

Vilnius University

Date Written: 2024

Abstract

This study examines how the impact of Tradable Green Certificates (TGC) on profitability and investment behavior varies depending on the vertical integration status of regulated firms. Our theoretical model predicts that vertical integration does not lead to higher profits when internal pricing aligns with market values for green certificates. However, it stimulates greater investment in renewable electric capacity since it reduces the costs of the sourced certificates. Empirical analysis of the Swedish TGC system confirms these findings, revealing that vertically integrated firms did not experience profit increases. Instead, they exhibited distinct investment patterns, prioritizing cost-effective technologies like hydro and thermal capacity over more expensive renewables, in contrast to non-integrated firms.

Keywords: renewable energy, tradable green certificates, vertical integration, firm-level data, causal effects, profits, investments, Sweden

JEL Classification: L100, L500, Q580

Suggested Citation

Coria, Jessica and Jaraite, Jurate, Vertical Integration in Tradable Green Certificate Markets (2024). CESifo Working Paper No. 11079, Available at SSRN: https://ssrn.com/abstract=4811791 or http://dx.doi.org/10.2139/ssrn.4811791

Jessica Coria (Contact Author)

Department of Economics, University of Gothenburg ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Jurate Jaraite

Vilnius University ( email )

Lithuania

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