Taxing strategies for carbon emissions based on stackelberg game

This paper presents a method to determine carbon tax on different generating units based on Stackelberg game, which can strike a balance between carbon emission reduction and the profit of energy industry. The upper-level decision maker is the government agency, he aims to limit total carbon emissions within a certain level with minimal additional cost by setting optimal tax rates for different generating units. The lower-level decision maker is the grid operator, he wants to minimize the total production cost through executing an economic dispatch while considering the tax levied by the government. The Stackelberg game model is finally formulated as a mixed integer linear program and solved by CPLEX. Case studies on a 10 unit system demonstrate the validity of the proposed model and method.