Optimal Carbon Taxes for Emissions Targets in the Electricity Sector

The most dangerous effects of anthropogenic climate change can be mitigated by using emissions taxes or other regulatory interventions to reduce greenhouse gas (GHG) emissions. This paper takes a regulatory viewpoint and describes the Weighted Sum Bisection method to determine the lowest emission ta...

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Bibliographic Details
Published in:IEEE transactions on power systems 2018-11, Vol.33 (6), p.5892-5901
Main Authors: Olsen, Daniel J., Dvorkin, Yury, Fernandez-Blanco, Ricardo, Ortega-Vazquez, Miguel A.
Format: Article
Language:English
Subjects:
Air pollution
Carbon dioxide
Carbon tax
Climate change
climate policy
Economic models
Electric industries
Emissions trading
Energy conversion efficiency
Energy transmission
Finance
Greenhouse effect
Greenhouse gases
Power system economics
Pricing
Tax rates
Taxes
unit commitment
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Summary:The most dangerous effects of anthropogenic climate change can be mitigated by using emissions taxes or other regulatory interventions to reduce greenhouse gas (GHG) emissions. This paper takes a regulatory viewpoint and describes the Weighted Sum Bisection method to determine the lowest emission tax rate that can reduce the anticipated emissions of the power sector below a prescribed, regulatorily-defined target. This bilevel method accounts for a variety of operating conditions via stochastic programming and remains computationally tractable for realistically large planning test systems, even when binary commitment decisions and multiperiod constraints on conventional generators are considered. Case studies on a modified ISO New England test system demonstrate that this method reliably finds the minimum tax rate that meets emissions targets. In addition, it investigates the relationship between system investments and the tax-setting process. Introducing GHG emissions taxes increases the value proposition for investment in new cleaner generation, transmission, and energy efficiency; conversely, investing in these technologies reduces the tax rate required to reach a given emissions target.
ISSN:0885-8950
1558-0679
DOI:10.1109/TPWRS.2018.2827333