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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 tax rate that
can reduce the anticipated emissions of the power sector below a prescribed,
regulatorily-defined target. This bi-level 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 multi-period 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
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