Markets for energy efficiency: Exploring the implications of an EU-wide 'Tradable White Certificate' scheme

Recent developments in European energy policy reveal an increasing interest in implementing the so-called 'Tradable White Certificate' (TWC) schemes to improve energy efficiency. Based on three evaluation criteria (cost-effectiveness, environmental effectiveness and distributional equity) this paper analyses the implications of implementing a European-wide TWC scheme targeting the household and commercial sectors. Using a bottom-up model, quantitative results show significant cost-effective potentials for improvements (ca. 1400 TWh in cumulative energy savings by 2020), with the household sector, gas and space heating representing most of the TWC supply in terms of eligible sector, fuel and energy service demand, respectively. If a single market price of negative externalities is considered, a societal cost-effective potential of energy savings above 30% (compared to the baseline) is observed. In environmental terms, the resulting greenhouse gas emission reductions are around 200 Mt CO2-eq by 2010, representing nearly 60% of the EU-Kyoto-target. From the qualitative perspective, several embedded ancillary benefits are identified (e.g. employment generation, improved comfort level, reduced 'fuel poverty', security of energy supply). Whereas an EU-wide TWC increases liquidity and reduces the risks of market power, autarky compliance strategies may be expected in order to capture co-benefits nationally. Cross subsidies could occur due to investment recovery mechanisms and there is a risk that effects may be regressive for low-income households. Assumptions undertaken by the modelling approach strongly indicate that high effectiveness of other policy instruments is needed for an EU-wide TWC scheme to be cost-effective.