Influence of emissions trading scheme on market clearing and prices

This paper and the presentation will compare emissions trading scheme in the European Union and the recently established Regional Greenhouse Gas Initiative in the US, looking at their similarities and differences, as well as results that are available so far. In addition, the paper investigates effects that emissions constraints may have on market clearing prices in electricity markets. The analysis is based on a two step procedure in which the emissions generation scheduling problem is solved first, and then its solution is used in the dynamic optimal power flow problem that also accounts for emissions constraints though augmented cost function that includes possible purchases or sales of emissions allowances on the market. This formulation allows for investigating how decisions of generators on how to use their CO₂ emission allocations over a period of time may affect market outcome and prices.