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.