Carbon tax revenue recycling for biomass/coal co-firing using Stackelberg game: A case study of Jiangsu province, China

Transitioning to low-carbon, low-cost energy systems is a major challenge. Carbon tax revenue recycling, which imposes a carbon price and then returns the revenue to emitters to encourage green initiatives, is being employed to internalize carbon costs and provide biomass/coal co-firing incentives. A bi-level carbon tax revenue recycling model for biomass/coal co-firing is developed using Stackelberg game, in which the authority is the leader and the coal-fired power plants are the followers. The authority decides on the optimal carbon tax price and recycles the revenue based on the predicted actions of the followers, after which the coal-fired power plants decide on biomass/coal co-firing quantities in response to the leader's decisions. A case study of Jiangsu Province, China and scenario analyses are given to demonstrate the practicality of the proposed model. The results indicate that carbon tax revenue recycling could potentially drive carbon emission reductions and encourage move towards cleaner energy sources. Revenue recycling is found to increase carbon tax levels from 28.06 to 56.19 CNY per t of carbon and increase biomass co-firing ratios from 7.753% to 9.997%. Some policy implications are provided to promote effective carbon tax revenue recycling.

Automated summary

Transitioning to low-carbon, low-cost energy systems is a major challenge, and carbon tax revenue recycling is being employed to internalize carbon costs and provide incentives for biomass/coal co-firing. A bi-level carbon tax revenue recycling model is developed using a Stackelberg game, and results show that it could potentially drive carbon emission reductions and encourage the move towards cleaner energy sources.