Game theory analysis for carbon auction market through electricity market coupling

TL;DR

This paper models the interaction between electricity and carbon markets using game theory to identify Nash equilibria, enabling the computation of equilibrium prices, electricity output, and CO2 emissions.

Contribution

It introduces a game-theoretic framework that explicitly couples electricity and carbon markets through producers' strategies, providing a method to analyze market equilibria.

Findings

Identifies Nash equilibria in coupled electricity and carbon markets.

Provides a computational approach for equilibrium prices and emissions.

Offers insights into market dynamics and policy implications.

Abstract

In this paper, we analyze Nash equilibria between electricity producers selling their production on an electricity market and buying CO2 emission allowances on an auction carbon market. The producers' strategies integrate the coupling of the two markets via the cost functions of the electricity production. We set out a clear Nash equilibrium on the power market that can be used to compute equilibrium prices on both markets as well as the related electricity produced and CO2 emissions released.