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Competition vs cooperation: renewable energy investment under cap-and-trade mechanisms

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  • Wei Chen

    (Chengdu University of Technology)

  • Jing Chen

    (Dalhousie University)

  • Yongkai Ma

    (University of Electronic Science and Technology of China)

Abstract

This paper explores the incentives of investment in renewable energy of two utility firms who compete or cooperate under either a cap-and-trade grandfathering mechanism (GM) or benchmarking mechanism (BM). We find that utility firms will invest in renewable energy more under BM than under GM, in both competitive and cooperative markets, and they will invest more in a competitive market than in a cooperative market, under either GM or BM. Furthermore, utility firms will produce more electricity and generate more total carbon emissions under BM than under GM. The profits of two firms, however, are higher in cooperative market than in competitive market. The government will benefit from implementing a BM to encourage utility firms to invest in renewable energy in a competing market.

Suggested Citation

  • Wei Chen & Jing Chen & Yongkai Ma, 2022. "Competition vs cooperation: renewable energy investment under cap-and-trade mechanisms," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-28, December.
    • Handle: RePEc:spr:fininn:v:8:y:2022:i:1:d:10.1186_s40854-022-00380-3
    DOI: 10.1186/s40854-022-00380-3
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