A reexamination of renewable electricity policy in Sweden

• Green certificates are the main renewable electricity policy instrument in Sweden.
• Green certificates cover only a small share of total RES-E production.
• Increasing certificate coverage improves efficiency, but leaves windfall rent.
• Municipalities veto socially desirable RES-E projects.
• We propose market-based building permits as a solution to this NIMBY problem.

Green certificates are the main instrument for promoting renewable electricity (RES-E) in Sweden. But certificates cover only a limited share of total RES-E production. Under partial coverage, crowding out may arise whereby costly new RES-E replaces inexpensive old RES-E. Granting certificates to all of RES-E production improves efficiency, but leaves windfall rent to otherwise profitable facilities. We also analyze transaction costs in the permit process for new RES-E in Sweden. Municipalities veto socially desirable projects because of asymmetrically distributed investment costs and benefits. We propose market-based permit fees rather than limited veto rights as a solution to this NIMBY problem.