Impacts of overlapping regulation on the electricity market concerning renewable portfolio standards and carbon emission trading

Abstract

The renewable portfolio standards (RPS) and carbon emission trading (CET) are considered effective emission reduction policy tools. However, the policy impact will become complex when there is overlapping regulation and an increase in trading entities. To analyze the policy effectiveness, this paper constructs a game model combined with goal programming to simulate the electricity market trading which consists of electricity generators and retailers. Green certificate trading and carbon trading are considered. Our research findings highlight the following key points: (1) As quota obligation increases, the strategy of large capacity generator is to increase wholesale price, while the strategy of small capacity generator is to lower wholesale price and increase electricity production. (2) Interestingly, the profit of generators first increases and then decrease with the quota obligation under independent mechanism. Retailers also maximize their profit when the quota obligation is intermediate. (3) The effectiveness of policies in reducing emissions and promoting the development of renewable energy may be ineffective. The quota obligation may reduce green electricity production, and carbon quotas may also increase thermal power production. The policy effects on different entities with different production technologies also varies significantly.