White certificates and competition

Tradable certificates are a good tool to promote economic activities when they increase the social surplus. White certificates are counterproductive, because although they encourage activities aimed at reducing energy consumption, these activities are “credence goods,” i.e., goods whose real quality cannot be verified. They therefore lead to opportunistic behavior by professionals of building renovation and heating system installation. In order to make the system virtuous, certificates should guarantee the results actually measured, instead of ex ante technical evaluations. Given the cost of controls, the accuracy of the declarations should be ensured by heavy penalties for infringements, which is not feasible when companies are too small. Concentration in the building renovation sector should therefore be encouraged, respecting a trade-off between the collective benefit of having large companies responsible for energy performance and the risk of abuse of a dominant position or collusion by these same companies.

I. Introduction 1. Energy utilities are legally bound to promote energy efficiency in 24 US states, 14 European countries, four Australian states and territories, Brazil, Canada, China, Korea, South Africa and Uruguay (International Energy Agency, 2017, 2020). The majority rely on a scheme of “white certificates” (also known as “energy saving certificates”). 2. These mechanisms are designed to correct a perceived “energy efficiency gap.” In the early 2000s, a few studies (e.g., McKinsey, 2009) argued that energy efficiency investments (e.g., attic insulation) were cost effective, which means that the value of the energy savings appropriately discounted exceeds the investment cost necessary to reduce energy consumption. In practice, few households make these investments. Possible

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Claude Crampes, Thomas-Olivier Léautier, White certificates and competition, February 2021, Concurrences N° 1-2021, Art. N° 98493, pp. 66-74

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