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Optimal Endogenous Carbon Taxes for Electric Power Supply Chains with Power Plants


  • Zugang Liu

    (University of Massachusetts)

  • Trisha Woolley

    (University of Massachusetts)

  • Anna Nagurney

    (Harvard University and University of Massachusetts Amherst)


In this paper, we develop a modelling and computational framework that allows for the determination of optimal carbon taxes applied to electric power plants in the context of electric power supply chain (generation/distribution/consumption) networks. The adoption of carbon/pollution taxes both internationally and regionally has been fuelled by global climate change and fuel security risks with a significant portion of such policy interventions directed at the electric power industry. The general framework that we develop allows for three distinct types of carbon taxation environmental policies, beginning with a completely ecentralized scheme in which taxes can be applied to each individual power generator/power plant in order to guarantee that each assigned emission bound is not exceeded, to two versions of a centralized scheme, one which assumes a fixed bound over the entire electric power supply chain in terms of total carbon emissions and the other which allows the bound to be a function of the tax. The behavior of the various decision-makers in the electric power supply chain network is described, along with the three taxation schemes, and the governing equilibrium conditions, which are formulated as finite-dimensional variational inequality problems. Twelve numerical examples are presented in which the optimal carbon taxes, as well as the equilibrium electric power flows and demands, are computed. The numerical results demonstrate, as the theory predicts, that the carbon taxes achieve the desired goal,in that the imposed bounds on the carbon emissions are not exceeded. Moreover, they illustrate the spectrum of scenarios that can be explored in terms of changes in he bounds on the carbon emissions; changes in emission factors; changes in the demand price functions, etc.

Suggested Citation

  • Zugang Liu & Trisha Woolley & Anna Nagurney, 2006. "Optimal Endogenous Carbon Taxes for Electric Power Supply Chains with Power Plants," Computing in Economics and Finance 2006 322, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:322

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    1. repec:gam:jsusta:v:9:y:2017:i:7:p:1240-:d:104830 is not listed on IDEAS
    2. Chaabane, A. & Ramudhin, A. & Paquet, M., 2012. "Design of sustainable supply chains under the emission trading scheme," International Journal of Production Economics, Elsevier, vol. 135(1), pages 37-49.
    3. Sadegheih, A., 2010. "A novel formulation of carbon emissions costs for optimal design configuration of system transmission planning," Renewable Energy, Elsevier, vol. 35(5), pages 1091-1097.
    4. Hafezalkotob, Ashkan, 2017. "Competition, cooperation, and coopetition of green supply chains under regulations on energy saving levels," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 97(C), pages 228-250.
    5. Zhang, Dongjie & Ma, Linwei & Liu, Pei & Zhang, Lili & Li, Zheng, 2012. "A multi-period superstructure optimisation model for the optimal planning of China's power sector considering carbon dioxide mitigation," Energy Policy, Elsevier, vol. 41(C), pages 173-183.
    6. Nagurney, Anna & Yu, Min, 2012. "Sustainable fashion supply chain management under oligopolistic competition and brand differentiation," International Journal of Production Economics, Elsevier, vol. 135(2), pages 532-540.
    7. Sadegheih, A., 2011. "Optimal design methodologies under the carbon emission trading program using MIP, GA, SA, and TS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(1), pages 504-513, January.


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