Tradable certificates for energy savings: Opportunities, challenges, and prospects for integration with other market instruments in the energy sector

Policy portfolios that include tradable green certificates have been introduced in several European countries to foster market-driven penetration of renewable energy sources. Another widely analysed type of market-based instrument in the energy sector is the tradable emission allowance. Recently tradable certificates for energy savings as a tool to stimulate energy efficiency investments and deliver energy savings have attracted the attention of policy makers. While such schemes have been introduced in different forms in Italy and the Great Britain and considered in other European countries, there is an ongoing debate over their effectiveness and applicability. The paper describes the concept and main elements of schemes that involve tradable certificates for energy savings (TCES) and how these have been put into practice in Italy and the Great Britain. It then compares TCES schemes with energy taxation and mandatory demand-side management (DSM) programs using a set of four criteria. Integration with green certificates and CO2 emissions trading schemes is examined and some possibilities for practical implementation are outlined.