Abstract
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.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
This does not necessarily imply minimization of total costs of energy-saving measures for society as a whole.
Empirical works show 20–30% rebound effect for space heating in residential building retrofits in Austria (Haas and Biermayr 2000); in the UK, Milne and Boardman (2000) found that about 30% of the potential energy savings from retrofit measures was taken as increased comfort in low-income households as of the late 1990s. Other empirical studies found rebound effect in US manufacturing of 24% (Bentzen 2004) and rebound effect for all Organization for Economic Cooperation and Development energy use of 5–15% (Schipper and Grubb 2000, cited in Binswanger 2001, and Oikonomou et al. 2004, respectively). But the magnitude of this rebound effect is declining over time due to the increasing penetration of central heating and increasing average indoor temperature (Geller and Atalli 2005). The sizes of the rebound effect differ markedly across technologies and measures: for example, for refrigerators, there has been a mere 1.7% increase in adjusted net volumes of refrigerators over the period 1994–2004 (Meli 2005). For an extended discussion of the rebound effect, see, for instance, the special issue of Energy Policy from June 2000 (Volume 28, Issues 6–7).
Externalities arise when certain actions of producers or consumers have unintended external (indirect) effects on other producers or/and consumers; in the presence of externalities, social benefits (costs) and private benefits (costs) differ. Externalities may be positive or negative. With negative externalities, social costs are higher than private costs: pollution is a negative externality. With positive externalities, social benefit is higher than private benefit, which leads to the undersupply of the activity by the market: the technological spillover of research and development is a positive externality.
In Europe, savings obligations are imposed either on grid companies (distributors, in Italy) or on energy suppliers (retailers, in France and the UK).
If a white certificate scheme is designed with suppliers’ targets independent of changes in kilowatt hour sales, then under a set of standard assumptions the only effect on energy price is decrease because the energy supply curves upward-sloping. However—as explained by Quirion (2005) based on a partial equilibrium model simulation—if suppliers must generate more certificates if they increase their sales, then certificates’ cost is a part of their marginal cost (hence of the energy price) and is passed like a tax on to consumers. While these statements are made with an assumption of perfect markets and competition, in practice, the level of the market liberalization and the possibility to increase tariffs have profound effects too.
This effect may be even stronger if schemes are developed with short-term vision and goals subject to review. Short-termism is poorly suited to stimulating innovation in the energy efficiency market because neither new nor existing market participants will have the incentives to invest in any new technologies or services, if the schemes provide insufficient time in which to obtain a return on that investment. We are indebted for this comment to David Young.
Energy savings are discounted over the lifetime of the measure and then standardized according to the carbon content of the fuel saved. These coefficients are set as: coal (0.56), electricity (0.80), gas (0.35), liquefied petroleum gas (LPG; 0.43), and oil (0.46).
The reason for the higher than 1% per annum target for the low-voltage users is because of the Flemish Parliament’s decision to provide free vouchers for the head of every family in 2004 and 2005 which can be exchanged via the electricity distributor for either an energy-saving compact fluorescent lamp (CFL) or a low-flow showerhead or an energy meter.
If the illustrative set of measures under EEC-1 were subject to the same set of assumption applied in EEC-2, the terawatt figure would fall from 81 to 66 TWh (Doughty).
No energy savings are attributed to either information or awareness raising even though these are included in the actions.
According to Faure and Skogh (2003), effective property rights have to fulfill the following criteria: (1) the owner must be able to enjoy the benefits and influence the costs generated by the resource and the owner’s effort; (2) it must be possible to enforce rights and duties privately and/or publicly; and (3) the owner needs to be able to contract with other parties involved.
Except for some measures, such as buildings thermal envelope, bioclimatic design, reduction of cooling needs, etc. that are valid for 8 years.
We are indebted for this comment to Nicola Labanca.
We are indebted for these comments to Ole Langniss.
One should note however that this suggestion is rather difficult to implement in practice for two major reasons. First, it requires the monitoring and evaluation of the actual energy performance of the project in order to allow the comparison between the lifetime energy savings accredited in advance and the real savings. Second, most of the energy-saving measures have quite long lifetimes; therefore, the comparison between real savings and accredited savings could only be made many years in the future (and many years after the first compliance checks).
e.g., in the case of CHP, the plant operator has to prove that the plant has run a certain number of hours, etc.
These costs can include rebates and measure implementation costs and expenses. A key element of cost recovery is the prudence review. In contrast, lost revenue recovery is a process whereby a utility estimates the amount of energy sales that did not occur due to the end-use energy efficiency efforts. We are indebted for these clarifications to Steven Schiller. Lost revenue recovery is not a feature of white certificate systems in Europe.
Energy efficiency or renewables set-aside quotas have been developed and introduced by six states in the NO x Allowance Trading Program in the USA.
References
Autorità per l’energia elettrica e il gas (2007). Secondo rapporto annuale sul meccanismo dei titoli di efficienza energetica. Situazione al 31 maggio 2007. Milan: AEEG.
Baudry, P., & Monjon, S. (2005). The French Energy Law and white certificates system. RECS Open Seminar, Copenhagen, 25 September.
Bentzen, J. (2004). Estimating the rebound effect in US manufacturing energy consumption. Energy Economics, 26, 123–134.
Bertoldi, P., & Rezessy, S. (2006). Tradable certificates for energy efficiency (white certificates): Theory and practice. Ispra: Institute for Environment and Sustainability, DG Joint Research Centre, European Commission.
Bertoldi, P., Rezessy, S., Langniss, O., & Voogt, M. (2005). White, green & brown certificates: How to make the most of them? Summer study of the European Council for Energy Efficient Economy. Mandelieu: ECEEE.
Binswanger, M. (2001). Technological progress and sustainable development: what about the rebound effect? Ecological Economics, 36, 119–132.
Boemare, C., & Quirion, P. (2002). Implementing greenhouse trading in Europe: lessons from economic theory and international experiences. Concerted Action on Tradable Permits (CATEP) workshop on the Design and Integration of National Tradable Permit Schemes for Environmental Protection, Fondazione ENI Enrico Mattei, Venice. Environmental Studies, University College Dublin.
Capozza, A., Devine, M., Enge, A. K., Grattieri, W., Monjon, S., Mundaca, L., et al. (2006). Market mechanisms for white certificate trading. Task XIV final report. Milano: CESI.
Collys, A. (2005). The Flanders (BE) regional utility obligation. In: Bottom-up Measurement and Verification of Energy Efficiency Improvements: National and Regional Examples. Brussels
European Commission (2005). Green paper on energy efficiency. Doing more with less. COM(2005) 265 final of 22 June 2005. Brussels: European Commission, DG TREN.
Faure, M., & Skogh, G. (2003). The economic analysis of environmental policy and law. An introduction. Cheltenham: Edward Elgar.
Geller, H., & Atalli, S. (2005). The experience with energy efficiency policies and programs in IEA countries. Learning from the Critics. Paris: IEA.
Grattieri, W. (2007). Market mechanisms for energy efficiency: white certificates in Italy. TAIEX Workshop on Demand Side Management in Energy Efficiency, Ankara.
Haas, R., & Biermayr, P. (2000). The rebound effect for space heating: empirical evidence from Austria. Energy Policy, 28(6–7), 403–410.
Jaccard, M., & Mao, Y. (2002). Making markets work better. In J. Goldemberg & T. Johansson (Eds.), Energy for sustainable development: A policy agenda (pp. 41–76). New York: UNDP.
Langniss, O., & Praetorius, B. (2003). How much market do market-based instruments create? An analysis for the case of “white” certificates. European Council for Energy Efficient Economy (ECEEE) summer study. Saint Raphael: ECEEE.
Lees, E. (2005). How increased activity on energy efficiency lowers the cost of energy efficiency. In RECS Seminar, Copenhagen.
Lees, E. (2006). Evaluation of the energy efficiency commitment 2002–2005. Wantage: Eoin Lees Energy.
Masero, S. (2005). Energy efficiency commitment. An example from the UK. RECS open seminar. Copenhagen: RECS International.
Meli, L. (2005). Energy efficiency: The European manufacturers’ achievements in year 2004. Energy Efficiency potential in buildings, barriers and ways to finance projects in New Member States and Candidate Countries. TAIEX–JRC Workshop on Scientific Technical Reference System on Renewable Energy and Use Efficiency, Tallinn, Estonia.
Milne, G., & Boardman, B. (2000). Making cold homes warmer: the effect of energy efficiency improvements in low-income households. Energy Policy, 28(6–7), 411–424.
Morley, M. (2004). Written Answers to Questions of 28 June 2004. Publications and records of the United Kingdom House of Commons. Environment, Food and Rural Affairs. Energy Efficiency Committment. Available at http://www.parliament.the-stationery-office.co.uk/pa/cm200304/cmhansrd/vo040628/text/40628w01.htm
NERA Economic Consulting (2006). Energy efficiency and trading. Part I: Options for increased trading in the energy efficiency commitment. Report by NERA Economic Consulting on behalf of DEFRA, London.
Oikonomou, V., & Patel, M. (2004). White certificates. Phase II of the White and Green project. Utrecht: Utrecht University, Copernicus Institute.
Oikonomou, V., Patel, M., Mundaca, L., Johansson, T., & Farinelli, U. (2004). A qualitative analysis of white, green certificates and EU CO2 allowances. Phase II of the White and Green project. Utrecht: Utrecht University, Copernicus Institute.
Oikonomou, V., Rietbergen, M., & Patel, M. (2007). An ex-ante evaluation of a White Certificates The Netherlands: A case study for the household sector. Energy Policy, 35(2), 1147–1163.
Pavan, M. (2002). What’s up in Italy? Market liberalization, tariff regulation and incentives to promote energy efficiency in end-use sectors. American Council for Energy Efficient Economy (ACEEE) summer study. Asilomar: ACEEE.
Pavan, M. (2003). Expectation from Italy: Suggestions to focus the project proposal. Workshop on organising a task on white certificates under the IEA-DSM Implementing agreement. Milan: CESI.
Pavan, M. (2004). The Italian White Certificates System: Measurement and Verification Protocols. In EU and ECEEE expert seminar on Measurement and Verification in the European Commission’s Proposal for a Directive on Energy Efficiency and Energy Services, Brussels.
Pavan, M. (2005). Italian Energy Efficiency Obligation and White Certificates: Measurement and Evaluation. In European Parliament Workshop on Case studies of Current European Schemes for the Measurement and Verification of Energy Efficiency Improvements, Brussels.
Quirion, P. (2005). Distributional impacts of energy-efficiency certificates vs. taxes and standards. Summer study of the European Council for Energy Efficient Economy. Mandelieu: ECEEE.
Rezessy, S., Bertoldi, P., & Pavan, M. (2006). Assessment of White Certificate Schemes and their integration into the carbon markets. American Council for Energy Efficient Economy (ACEEE) summer study on energy efficiency in buildings. Asilomar: ACEEE.
Rezessy, S., Bertoldi, P., & Voogt, M. (2007). Mission possible: Bringing end-use energy efficiency to the European Emissions Trading scheme. Summer study of the European Council for Energy Efficient Economy. La Colle Sur Loup: ECEEE.
Schipper, L., & Grubb, M. (2000). On the rebound? Feedback between energy intensities and energy uses in IEA countries. Energy Policy, 28, 367–388.
Sorrell, S. (2003). Who owns the carbon? Interactions between the EU Emissions Trading Scheme and the UK Renewables Obligation and Energy Efficiency Commitment. Energy and Environment, 14(5), 677–703.
Acknowledgements
The present paper builds on work undertaken jointly by the two authors, most importantly Bertoldi and Rezessy (2006). The authors would like to thank all experts consulted in the process of preparing the aforementioned publication and gratefully acknowledge the insightful remarks of the guest editors, Nicola Labanca and Adriaan Perrels. The present paper also brings perspectives obtained by the second author during her work on the EuroWhiteCert project (www.eurowhitecert.org).
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Bertoldi, P., Rezessy, S. Tradable white certificate schemes: fundamental concepts. Energy Efficiency 1, 237–255 (2008). https://doi.org/10.1007/s12053-008-9021-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12053-008-9021-y