Energy trade-offs in coupled ICM and electricity market under dynamic carbon emission intensity

Abstract

With the adoption of the cap-based carbon market (CCM), a growth-limiting dilemma from the industrial growth and emission cap reduction has emerged, making it unsuitable for developing countries under rapid industrialization. In contrast, the intensity-based carbon market (ICM) provides a promising option targeting carbon emission intensity (CEI) reduction. However, due to the complexity of correlations between the ICM and electricity market (EM), the resulting energy trade-offs have not been investigated clearly. Thus, this paper quantifies the impact of market correlations on energy trade-offs under the dynamic CEI. Firstly, the CEI dynamic is proved and modeled as an inversely proportional function to the power output. Then, a stochastic EM clearing model for energy trade-offs restricted by ICM obligations and renewable uncertainties is designed. Since the model is a mixed-integer nonlinear problem with multiple scenarios, it is then reformulated and solved by the Generalized Benders Decomposition method. Finally, the proposed method is demonstrated on the IEEE 14- and 118-bus systems. The results show that the ICM effectiveness is dependent on CEI benchmarks and carbon prices, and the ignorance of the CEI dynamic can lead to the miscalculation of carbon emissions and sector profits.