The Impact of Carbon Emission Quota Allocation Regulations on the Investment of Low-Carbon Technology in Electric Power Industry Under Peak-Valley Price Policy

Abstract

This article focuses on carbon emission quota allocation regulations and their impact on investments in low-carbon technology within the electric power industry, as well as other enterprises’ decisions and profits under peak-valley price policy and cap-and-trade mechanism. An electricity supply-chain model is constructed in a Stackelberg game, which comprises an electricity-generating enterprise (leader) and an electricity retailer (follower). The backward-induction method is used to obtain the investment in low-carbon technology and electricity price under three scenarios of carbon emission quota allocation regulations: no regulation, grandfathering allocation, and benchmarking allocation. The main results are: first, benchmarking allocation always results in higher investment in low-carbon technology, but generates greater total carbon emissions than grandfathering allocation under most conditions; and second, under benchmarking allocation, as the unit carbon emission quota increases, total carbon emissions first increase and then decrease. Therefore, benchmarking allocation is the better regulation for the low-carbon technology investment. Moreover, benchmarking allocation is also the better regulation for total carbon emissions with a higher unit carbon quota or a higher carbon price.