Cap-and-trade vs. carbon taxes: A quantitative comparison from a generation expansion planning perspective

We compare the effectiveness and efficiency of cap-and-trade and carbon tax policies in a generation expansion planning framework. The effectiveness refers to a policy’s capability to control the amount of carbon emissions, and the efficiency is measured with respect to seven criteria: average emissions price, actual emissions, renewable energy portfolio, total generation, total profit of Gencos and grid owner, economic welfare, and emissions adjusted economic welfare. Cap-and-trade and four variations of carbon tax policies are integrated in a game-theoretic based generation expansion planning model to assess their impacts on new investment in renewable energy generation capacity. A case study is conducted on a 30-bus test system, and numerical results provide insights on the advantages and disadvantages of these policies.

► We compare the cap-and-trade and carbon tax policies in a generation expansion planning framework. ► We present a bilevel optimization approach to compare all policies using seven efficiency criteria. ► We report numerical results from a case study on an IEEE 30-bus test system. ► Our study reveals the differences, similarities, strengths, and disadvantages of various policies.