Research on the Emergence of Herd Behavior of Tradable Green Certificate Transaction Subjects based on system dynamics

Yi Zuo1,2, Peng Wang3, Zhaofang Duan4, Hui Fan4, Minjie Wu4
1School of Economics, Peking University, Beijing, 100871, China
2Economics and Technology Research Institute, China National Petroleum Corporation, Beijing, 100724, China
3PetroChina Natural Gas Marketing Company, China National Petroleum Corporation, Beijing, 100028, China
4 Economics and Technology Research Institute, China National Petroleum Corporation, Beijing, 100724, China

Abstract

The Tradable Green Certificate (TGC) system scientifically guides renewable energy investment by internalising the positive externalities of renewable electricity. With the promotion of energy transition, the demand for TGC has increased significantly, and the scale of market players has gradually expanded. Market players will imitate other players’ trading strategies for reasons such as herd mentality, which is manifested as herd behaviour. If TGC market players ignore high-quality information and blindly imitate the behaviour of other players, it will limit the diffusion of effective information in the market and reduce the pricing efficiency of the market. Therefore, this paper explores the emergence law of herd behaviour in the TGC market based on a hybrid system dynamic model, with a view to providing theoretical and methodological support for the immediate identification of market risk. This paper portrays the emergence process of herd behaviour of TGC trading subjects, and analyses the emergence law through multi-scenario computational experiments. The results show that (1) herd behavior will emerge from all kinds of strategy subjects and there is a positive feedback relationship between the emergence speed and the return difference between subjects. (2) The emergence of herd behaviour of fundamental strategy subjects has scale and structural effects, and only when the initial imitation scale of such subjects reaches 40% or the market share is less than 50%, will the emergence of herd behaviour, and the depth of its emergence shows an ‘S’ type growth. (3) The herd mentality and the weakening of cognitive bias of TGC trading subjects will reduce the emergence speed of herd behaviour, but have almost no effect on the depth of emergence.

Keywords: Renewable energy, Tradable Green Certificate, herd behavior, system dynamics