Cost–benefit analysis of Gencos market trading with carbon-tax and cap-and-trade policies

Abstract

Environmental issues have made reducing carbon emissions a consensus among all countries. The electricity market provides a competitive environment and at the same time makes it possible to reduce the carbon emissions of the electricity system through market-oriented means. Firstly, this paper focuses on carbon-tax and cap-and-trade market policies and introduces the quotation models of power generation companies with the two market policies. Then, in a specific market scenario, the bidding strategies, cost-benefit changes, and the carbon emission changes of the power system are analyzed when the Gencos are affected by carbon-tax policies with different tax rates or cap-and-trade policies with different carbon quota allocation methods. The results show that with the increase of the carbon-tax rate, the market-clearing price rises; except for the coal-fired power plants with high carbon emissions, the profits of other Gencos increase, and the carbon emissions in the system decrease significantly. Using the baseline method, historical emission method, and carbon emission reduction intensity method to allocate carbon allowances among Gencos can all achieve carbon emission reduction effects, and the carbon emission reduction intensity method has the best effect. Finally, the trading strategy of coal-fired Gencos with the cap-and-trade policy is proposed to increase their profits.