Optimal Carbon Taxes for Emissions Targets in the Electricity Sector

• Published in: IEEE transactions on power systems Vol. 33; no. 6; pp. 5892 - 5901
• Main Authors: Olsen, Daniel J., Dvorkin, Yury, Fernandez-Blanco, Ricardo, Ortega-Vazquez, Miguel A.
• Format: Journal Article
• Language: English
• Published: New York IEEE 01-11-2018; The Institute of Electrical and Electronics Engineers, Inc. (IEEE)
• 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
• ISSN: 0885-8950; 1558-0679
• DOI: 10.1109/TPWRS.2018.2827333

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.