| At the end of 2007, the United Nations Formwork Convention on Climate Change (UNFCCC) passed the Bali roadmap in Indonesia, since then, the low carbon economy has developed quickly across the whole world. Last year saw the UNFCCC passed the Cancun agreement. And this promising event as well as the Copenhagen accord further puts obligations on the coal-fired power sector of developing countries to mitigate carbon emission. In November 2009 China government announced that its carbon dioxide emission level would decrease by 40%-45% per gross domestic product (GDP)at 2020 year based on that of at 2005. As the largest carbon emission sector of Chinese national economy, the coal-fired power sector discharged 38.76% carbon dioxide currently, and it still has a continuing increase trend. Obviously, it is an obligation for coal-fired power sector to mitigate carbon dioxide to prohibit climate change reaching the dangerous level. So it is very practical to encourage generators to mitigate carbon dioxide emission through market process on condition of electricity satisfying national economy development.Facing climate change as well as electricity market reform, we need coordinate carbon market and wholesale electricity market to promote optimized allocating scarcity resources, to ensure load demand of national economy development, and to encourage generators effectively mitigating carbon dioxide emission. This paper aims to design carbon mitigation combinatorial markets for coal-fired power sector to satisfy the above requirements. So we set the following main research contents:(1) Defining the related concepts of electricity market and carbon emission market; making a careful review on carbon mitigation practice about coal-fired power sector at home and abroad to obtain their successful experiences and shortcomings; refining the key problem which this paper will solve.(2) In order to solve the above problem, we will face a complexity system which is composed of electricity market, carbon emission market, and related regulations tools. In theory, describing this complexity system exactly requires synthetic utilization of incentive mechanism design theory, supply function equilibrium theory, and electricity-environment coordinated regulation theoretical model. So we will make a careful literature review on these theories.(3) Under the guidance of electricity-environment coordinated regulation theoretical model, designing the carbon mitigation combinatorial markets according to the above successful experiences and shortcomings of carbon mitigation in coal-fired power industry at home and abroad, and incentive mechanism design theory which we have reviewed.(4) Building generator's decision mathematics model for initial emission allowances allocation in initial emission market and electricity production allocation in wholesale electricity market respectively; solving these mathematics models; analyzing major price-quantity features about generators'decision in the two markets; and using related refined rules to get each market's refined Nash equilibrium.(5) Introducing numerical simulation method to test the new combinatorial markets. Building validity test model for initial emission market based on the restriction of emission allowances cap and grandfathering allocating allowances used comprehensively in practice; building validity test model for wholesale electricity market based on the market clearing price (MCP) auction and the restriction of emission allowances cost.Having fulfilled the above research work, the major results are given below:(1) The main successful experiences about carbon dioxide mitigation for coal-fired power sector abroad include, (i) using multiple mitigation instruments to decrease price elasticity of emission allowances; (ii) setting measurable, reportable, and verifiable carbon dioxide trade system; (iii) carbon dioxide emission market has promoted the competition in electricity market in some way. However, there still have some shortcomings about carbon dioxide mitigation for coal-fired power sector abroad. These include, (i) carbon price fluctuating too vigorously; (ii) carbon price at a lower level in most time induced by grandfathering allocating emission allowances; (iii) carbon price being transferred into electricity price at a very high proportion; (iv) generator using emission allowances speculation to get windfall profit; and (v) there still need to improve coordinated operating among carbon emission market, electricity market, and multiple regulation instruments. Referring to carbon mitigating practice of coal-fired power sector abroad, Chinese carbon emission market design for coal-fired power sector may take the following suggestions: (i) building carbon dioxide emission market characterized by gradation and classification gradually; (ii) introducing multiple mitigation instruments to decrease price elasticity of emission right; (iii) promoting carbon emission market, goal electricity market, and related regulation instruments coordinated operation; (iv) building carbon management and auditing system gradually; and (v) reforming the current coal-fired power sector to mitigate carbon dioxide emission.(2) There has brought some mitigation effects by Chinese electric power market reform process. And these policies include, (i) optimizing generation structure; (ii) improving generation technology; (iii) applying clean coal technology; (iv) decreasing generation coal consumption ratio; (v) clean development mechanism (CDM) project trade; and (vi) motivating carbon dioxide emission control and carbon dioxide catch and sequestration (CCS). However, Chinese coal-fired power sector still has some problems about carbon dioxide mitigation. These include, (i) applying multiple regulation instruments coordinately to encourage generators to mitigate carbon dioxide needs to be improved; (ii) introducing market process coordinately to motivate generators to mitigate carbon dioxide still stands at its start point; and (iii) advanced low carbon technologies, such as high efficiency coal-fired generation technology, CCS technology, etc., require corresponding incentive mechanism to make them more applicable.(3) Applying incentive mechanism design theory, design the carbon mitigation combinatorial markets based on electricity-environment coordinated regulation. The new combinatorial markets transform the key problem which is effectively encouraging generators to mitigate carbon dioxide emission through market process on condition of electricity satisfying national economy development into a dynamic process. it is described as"electricity regulator——environment regulator——generators make emission allowances price-quantity decision in initial emission market (taking emission secondary market into consideration)——environment regulator determines winner in the initial emission market combinatorial auction——generators make electricity price-quantity decision in wholesale electricity market (taking emission secondary market into consideration)——electricity regulator determines winner in the wholesale electricity market combinatorial auction, and environment regulator organizes emission secondary market trade and settlement". As we will see in chapter 4 to chapter 7, this dynamic process forms an economy dispatch model on condition of carbon emission market and electricity market. The model is composed by two dynamic phases. Firstly, generators need to make emission allowances price-quantity decision in initial emission market. Secondly, they need to make electricity price-quantity decision in wholesale electricity market. The two dynamic phases are coordinated by emission secondary market, electricity regulator, and environment regulator, which can ensure the model's feasibility. Generators'decision making in each market takes price and quantity as two independent variables and is based on all open- and privacy- information available at this stage, which leaves generators more decision space to deal with market competition under asymmetrical information and uncertainty. So it can satisfy individual rationality and incentive compatibility that are required by incentive mechanism design.(4) Building two stochastic parameter linear programming mathematics models to describe generators'emission allowances decision in initial emission market and their electricity production decision in wholesale electricity market respectively. Solving these models, we have obtained generators'optimized demand function for initial emission allowances and optimized supply function for electricity production. Furthermore, we have obtained each market's refined Nash equilibrium by defining and applying the emission critical price range (ECPR) and equilibrium vector space (EVS) refined rules. The refined Nash equilibrium in each market can ensure optimized allocating scarcity resources through market process and electricity-environment coordinated regulation. So at the equilibrium state of the new combinatorial markets, generators are effectively motivated to decrease emission intensity, expected coal-fired cost of unit generated power, and self consumed electricity ratio on condition of electricity satisfying national economy development.Under the new combinatorial markets, generators'offering price and offering quantity in each market are all in a way of sequence ordered. Their faced MCP and allocated resources at market equilibrium state all have some prominent features. These results reveal that, at the new combinatorial markets equilibrium state, (i) carbon dioxide allowances have a preference to be gained by those generators who own synthetic operating advantages composed of expected coal-fired cost of unit generated power, emission intensity, and self consumed electricity ratio; (ii) allocating electricity production resources through wholesale electricity market process still has this property on condition of electricity satisfying national economy development.(5) Applying numerical simulation method, we provide a validity test on the existence of major features at initial emission market auction, including the ordered sequences of generators'offering allowances quantity and offering price, generators'allocated allowances at market equilibrium state. At the same time, by comparing with test model, we confirm that given supplied electricity, the initial emission market only requires less emission allowances supply. In other words, given emission cap restriction, it can ensure more electricity to be generated.Based on the same method, we provide a validity test on the existence of major features in wholesale electricity market auction, such as the ordered sequences of generators'offering electricity quantity and offering electricity price, generators'allocated electricity production quantity at market equilibrium state. Furthermore, by making a comparison to corresponding test model, we confirm that (i) the new combinatorial markets can effectively prohibit generators getting windfall profit by emission allowances trade or by transferring carbon price into electricity price at a higher proportion; and (ii) given supplied electricity, it can effectively decrease the whole carbon dioxide emission intensity of the coal-fired power industry. Summarizing the above analyses, the main features or innovations of this research project are given below:Firstly, this paper has built a power system economy dispatch model under the condition of electricity market and carbon emission market. Furthermore, it has built two stochastic parameter linear programming mathematics models for generators'initial emission allowances optimized allocation and for their electricity production optimized allocation respectively. These models embody individual rationality, incentive compatibility, and feasibility, which are intrinsically required by incentive mechanism design theory. So they extend the application of incentive mechanism design theory to the carbon dioxide mitigation field in the coal-fired power sector.Secondly, this paper has provided a two-stage dynamic supply function equilibrium (SFE) model to depict combinatorial auction both in carbon emission market and in wholesale electricity market. This work slacks the rigorous symmetric assumptions in traditional SFE model from the aspects of generators'cost function, capacity restriction, emission intensity, and self consumed electricity ratio. Furthermore, by defining and applying ECPR and EVS refined rules, we not only have obtained each market's refined Nash equilibrium, but also have simplified the solution process. Generally, our work improves the practical feature of SFE theory, and has an advantage of extending the theory to carbon mitigation field in the electric power industry.Thirdly, the new combinatorial markets has complemented the shortcomings of grandfathering allocating emission allowances, carbon price fluctuating too vigorously, carbon price being transferred into electricity price at a higher proportion, and uncoordinated operating between carbon emission market and wholesale electricity market. So it can effectively encourage generators to mitigate carbon dioxide on condition of electricity satisfying national economy development.In summary, the carbon mitigation combinatorial markets based on electricity-environment coordinated regulation can coordinate carbon emission market and wholesale electricity market to optimize scarcity resources allocation among generators, promote open- and fair- competition in each market, encourage generators to decrease emission intensity, expected coal-fired cost of unit generated power, and self consumed electricity ratio. More generally, it can promote generators to internalize mitigation cost, improve their synthetic operational advantages, effectively decrease carbon dioxide emission level, and realize economy——electricity——environment coordinated development. |
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