Interactions between market forces and regulatory interventions in the Italian market of white certificates

The goal of this paper is to analyze the equilibrium of the Italian market of white certificates (WC) during the 2006–2021 period by relying upon granular data of prices, traded volumes, demand, supply, and information on regulatory interventions. It emerges that market forces, represented by an infinitely inelastic demand curve and a convex supply function, describe the trends of prices and traded volumes up to mid-2016, while they do not during the following biennium. We suppose that the remarkable and sharp fluctuations of the WC price observed in 2016–2018 are due to decreasing returns that energy companies face in energy efficiency investments and to exogenous shocks caused by poorly designed regulatory interventions. It turns out that the equilibrium is the results of interactions between market forces and public intervention, as well as their related failures, aiming to a self-sustainable mechanism oriented to technological innovation.