Effective mechanism for trading generation rights in the context of carbon emission rights

Abstract

In the global context of intensive energy resource consumption and substantial greenhouse gas emissions, as the energy sector with the highest share of carbon emissions, the power generation industry is destined to play a central role in China's efforts to promote energy conservation and emission reduction. With the emergence of local carbon pilot projects and the implementation of a national carbon market, key emission units in the power industry, in addition to the electricity market business, also need to fulfill and pay carbon emission rights on schedule. The power generation rights are a market-based mechanism for clean energy units to replace conventional energy units in electricity generation, which can promote carbon emission reduction by incorporating the actual carbon emissions from conventional energy units. This paper establishes an optimized social welfare model that incorporates the interdependency between the thermal power generation unit market and the electric carbon market. It is based on the social welfare model of power generation rights and the initial allocation of carbon emission rights for the units, while considering the cost increase of excess emission under monthly forecasted power generation by the thermal power units. Taking a certain hydropower province as the simulation object, it was verified that the optimized model has a higher transaction rate of power generation rights, greater social welfare, and no reduction in unit revenue.