Economic Efficiency of Compulsory Green Electricity Quotas in Sweden

Abstract

Green certificates are not an efficient as a measure to correct for the effect of environmental external costs of fossil fuels and nuclear power. Nor are they efficient as a measure to create markets for new electricity supply technologies. Removing subsidies and introducing environmental taxes on energy sources with undesired external effects more efficiently corrects for incurred environmental costs. It appears that guaranteed feed-in tariffs are a more efficient policy instrument to promote the industrialisation of technologies for new sustainable sources of electricity. Alternatively, the certificate scheme could be reformed in a number of ways to improve performance. However decisions to change or abolish the instrument cannot be taken lightly since instrument stability is very important for the credibility of future policy.