Cooperative Carbon Emission Trading: A Coalitional Game Approach

Many countries have implemented different policies to achieve carbon neutrality in the current century. The cap-and-trade policy is one of the popular policies. The cap-and-trade policy provides carbon emission quotas for power generation companies. Each company must carefully determine its energy production based on the carbon emission quota and demand uncertainty. In this paper, we analyze the cooperation among different power generation companies using the coalitional game theory. We show the optimality of the grand coalition for minimizing the total cost by proving that the cost function is subadditive. This result highlights the benefits of cooperation. We further propose a cost allocation mechanism that allocates the total cost to different power generation companies. We prove that the proposed cost allocation mechanism is in the core of the coalitional game such that no group of power generation companies has any incentive to leave the grand coalition. Numerical experiments have been conducted to validate the established theoretical results.