Impact of carbon emission trading and renewable energy development policy on the sustainability of electricity market: A stackelberg game analysis

Abstract

Optimizing the electricity structure and achieving sustainable development are critical objectives in the current electricity market. To facilitate a low-carbon transition, China is planning to implement renewable energy development policies based on carbon emissions trading (CET), which includes feed-in premiums (FIP), renewable portfolio standards (RPS), and their corresponding green certificate trading mechanisms. However, it remains to be seen how these policies will work together to promote the growth and adoption of renewable energy sources in China. Accordingly, this paper aims to establish a Stackelberg game model of the electricity market under the two types of combination policy scenarios of CET-FIP and CET-RPS and compare the influence of different combination policies on the development of the renewable energy industry. The results show that: (1) Compared with a single renewable energy development policy, CET-RPS and CET-FIP policies can effectively reduce carbon emissions. (2) In the long run, the CET-RPS policy has a stronger ability to reduce emissions, and the CET-FIP policy has stronger economic benefits. (3) In the early stage of renewable energy development, electricity generation, profit of power generation companies, and social welfare are higher under the CET-RPS policy, while in the mature stage of renewable energy development, these important performance indices become better under the CET-FIP policy. (4) Under the CET-RPS policy, an increase in carbon price will result in an increase in on-grid price and a decrease in green certificate price. In contrast, under the CET-FIP policy, an increase in carbon price will lead to an increase in on-grid price and premium subsidy.