A cooperative game analysis for the allocation of carbon emissions reduction responsibility in China's power industry

Abstract

Abstract The allocation of carbon emissions reduction responsibility (CERR) is a fundamental step to carbon emissions trading (CET) market. In China's power industry, regions with divergent power generation efficiencies and energy structures are connected by a nationwide power grid, causing shifts in carbon emissions. We construct a graph restricted cooperative game model for the allocation of CERRs among regions by proposing a novel characteristic function to describe possible minimal carbon emissions in which power generation is prioritized by efficiency. We employ the Myerson value as the solution of the game to capture the structure of the power grid and the power transmission. Our results indicate the following: (1) Power producing regions with high ratio of clean energy such as “Southwest” and “Sichuan and Chongqing” obtain negative shares of CERR. This provides an incentive for them to contribute to carbon emissions reduction. (2) Large power consumers such as “East” and “Bohai Rim” should take larger CERRs because they transfer carbon emissions to the power producing regions. (3) The role of a region in the power transmission network is an important factor in allocating CERR. This study provides insightful policy implications for the construction of a CET market in China's power industry.