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Fair GREEN trade first needs a fair market

Your leader (March 2003) highlights the need for correcting some general misconceptions and clarifying definitions about "tradable green certificates," "certificates of origin," and international trade of wind power and other renewable electricity. You seem to support the general misconception that tradable green certificates will remove all obstacles to international trade and automatically create a well functioning market for renewable electricity. They will not, and neither will any of the other available mechanisms unless we take things in the right order.

Your leader (Most Green, Least Traded, March 2003) highlights the need for correcting some general misconceptions and clarifying definitions about "tradable green certificates," "certificates of origin," and international trade of wind power and other renewable electricity.

You seem to support the general misconception that tradable green certificates will remove all obstacles to international trade and automatically create a well functioning market for renewable electricity. They will not, and neither will any of the other available mechanisms unless we take things in the right order. If renewable energy is ever to be included in the Single European Market, we should stick to the practice the EU has followed ever since the signing of the Single European Act in 1986: harmonise first, trade later.

You label 2002 as "the year of the green power certificate" while referring to "Europe's foremost trading system, the Renewable Energy Certification Scheme (RECS)". RECS, formed by a group of European utilities, is actually short for "Renewable Energy Certificate System," but "Certification Scheme" probably covers the nature of the group's activities better. The misprint is a very good illustration of the widespread confusion between tradable green certificates and certificates of origin.

differences

A certificate of origin is nothing but a product label. It makes as much sense trading that as trading content descriptions of products in the supermarket. Just as labels on products in the supermarket, RECS certificates are not homogeneous in nature -- yet. There are literally hundreds, maybe thousands, of different RECS certificates due to differences in underlying electricity generation technologies and conditions of installation and operation of the renewable energy plants. Until these underlying conditions are harmonised, RECS is nothing but an "electricity label umbrella framework." Giving something a common name does not facilitate trade and a well functioning market -- on the contrary. That is why far less RECS certificates have been traded than issued. Issuing 13.5 TWh of RECS certificate does not mean that the certificates were actually traded.

Obviously, certificates trading can work in a single country where national conditions are harmonised. But with 15, soon 25, different countries in the EU, each with their different approach to such matters as grid codes and grid connection costs, it is impossible to create a well functioning EU-wide market for green electricity unless we harmonise before trading.

Some players in the power industry are trying to do it the other way around -- trade first, harmonise later -- because a distorted, unregulated certificates market is a way to escape paying the full costs of pollution, because a certificate can be used in marketing departments to label invisible products, and because a distorted voluntary market could be used to undermine national mandatory targets for renewable energy.

Years of debate

We have spent years debating a EU-wide payment mechanism for wind power and other renewables. Should it be based on fixed feed-in tariffs, fixed premiums, tradable green certificates, public tenders or something else? But too much emphasis is being put on which payment mechanism to choose and too little on how to harmonise national rules and regulations to secure a solid foundation for a well functioning market for renewable electricity in the future.

No matter which mechanism we end up with, harmonisation is a precondition for trade. Without it we risk creating a framework that will make the Common Agricultural Policy seem like a sensible market exercise in comparison.

And to correct another misconception: neither tradable green certificates nor tradable greenhouse gas emission allowances have anything to do with "stripping the environmental added value from a kilowatt of power" as you write. If a tradable green certificate market works effectively, the price of a certificate will reflect the difference between the market price of electricity and the generation costs of new renewable generating capacity. Only by coincidence will that value equal the environmental benefits of wind power and other renewables.

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