The EU electricity market: Renewables targets, Tradable Green Certificates and electricity trade

Several EU member states have introduced national systems of Tradable Green Certificates (TGCs), which stipulate the percentage of total energy consumption to be obtained from renewable sources. The Renewable Energy Directive sets a binding EU-wide target of 32% but without imposing legally binding national targets. To assess incentives for the choice of national percentage requirements we develop a two-country, Cournot duopoly model of the electricity market, with one greenand one blacksupplier in each country. We show that nationally determined percentage requirements do not align with the EU-welfare maximising renewable energy target due to cross-country externalities arising from trade in electricity and the market price of TGCs and examine the direction of misalignment. Our results cast doubts on the feasibility of EU renewable energy policy in the absence of binding national targets and inform how national targets should be shaped.

Automated summary

The study finds that the national percentage requirements set by EU member states are inconsistent with the EU-wide renewable energy target due to cross-country externalities arising from electricity trade and TGCs market prices. This raises doubts about the feasibility of EU renewable energy policy without binding national targets, and provides guidance on how national targets should be shaped.