Carbon pricing and supporting policy tools for deep decarbonization; case of electricity generation of Sri Lanka

Abstract

This study internalizes carbon pricing and other regulatory policy tools for decarbonizing the electricity generation mix of Sri Lanka. Carbon Pricing is shifted to the supply side as a decision-making tool. We consider $10/tCO2, $20/tCO2, $30/tCO2, $44/tCO2, $130/tCO2, and $297/tCO2 as potential carbon prices. Other regulatory policy tools, such as mandatory renewable energy (RE) development, fuel switching, fossil fuel phasing out, fossil fuel development moratoriums, and mandatory RE utilization, are included as possible supporting tools. Three capacity-development scenarios and three optimization models with three objective functions are designed and implemented in the General Algebraic Modeling System (GAMS). Six policy options are presented for the Sri Lankan context considering cost, emission, and diversification. Results suggest a carbon price that falls between $10/tCO2-$44/tCO2 as suitable for Sri Lanka. The study contributes to the ongoing debate on the effectiveness of carbon pricing by empirically testing the effectiveness of carbon prices in the electricity generation planning of a developing country. The findings support the emerging consensus of adopting other regulatory policy tools along with carbon prices to achieve deep decarbonization. The study also assesses the role LNG could play in a developing country’s electricity generation mix. We recommend transitioning from coal to LNG as an intermediate decarbonization policy option until the RE capacities are developed to make the near-zero emission mix a reality.