ETS, Emissions and the Energy-Mix Problem
36 Pages Posted: 16 Jun 2021
Date Written: June 15, 2021
We investigate the impact of ETS on the emissions and the energy-mix through a bilevel model where at the upper level the policymaker interacts with an oligopolistic electricity market over a finite time horizon. At the upper level, the policymaker aims at maximizing a social welfare function deciding the optimal number of allowances to be distributed to the electricity market. At the lower level, the electricity market, represented by two large producers, decide the optimal long-term capacity expansion between conventional and non-conventional technologies. The uncertainty is modeled through scenarios, obtained using a Markov chain bootstrapping, made of coal and gas prices and electricity demand. We solve the problem considering a large set of efficient equilibrium solution between the two electricity producers.
Keywords: Emission Trading System, Energy-Mix, Stochastic Programming, Electricity Market, Markov Chain Bootstrapping
JEL Classification: C02, C60, C61, C63, D43
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