Games Strategy Study of Power Generation and Carbon Emission Rights Trading

Kun Xiao and Jingdong Zhang

Games Strategy Study of Power Generation and Carbon Emission Rights Trading

2019

Kun Xiao and Jingdong Zhang

It is of great significance to reduce carbon emissions from electric power generation for green development. In addition to technical measures, two trading mechanisms are built to optimize China’s electric power generation: generation rights trading, and carbon emission rights trading. However, as the carbon emission rights trading are initiated, the issues of how to choose the right trading mechanism, and determining the appropriate strategy under the corresponding trading mechanism continue to confuse generation enterprises. In order to clarify these issues, the game theory was used to identify the proper trading strategies for generation enterprises under the two highly similar trade mechanisms. Results show that the two trading mechanisms are complementary to each other to some extent, and the generation enterprises should choose a proper trade strategy according to the endowment of generation prices, the technical abilities, the grid-loss price and the ratio of carbon-electricity conversion. The equilibrium solutions of trading scales and prices for the two trading mechanisms are mostly related to the endowments of generation prices. Generally, the buyers with higher endowments of generation prices should choose the carbon emission rights trading, and the buyers with lower endowments of generation prices can only benefit in generation rights trading. The bigger gaps between the endowments of generation prices of buyers and sellers are, the more likely the trade can be made and further result in a better environmental consequence. The conclusions provide suggestions to the government that, the grid-loss pricing and the ratio of carbon-electricity conversion could be used as key tools to regulate the market for both of the trade mechanisms.

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