Rolling horizon optimisation strategy and initial carbon allowance allocation model to reduce carbon emissions in the power industry: Case of China

As the largest carbon emission industry in the world, the power sector is using a carbon emission trading system (ETS) to achieve carbon neutrality. As an effective and widely used market tool, the ETS must ensure economic development, which is related to initial carbon allowance allocation. This study creates a carbon allowance allocation model based on a Stackelberg game to decouple the carbon trading and the electricity markets during operation. The model uses the rolling optimisation method to approach the goal of carbon neutrality in stages and achieve coordinated emission reduction in multiple regions. It optimises the allowance supply based on the feedback of the carbon market, which can reduce the deviation between the carbon emission intensity of the power generation industry and carbon neutral target value, and it will also not significantly affect the total power supply. Taking China as an example, the reliability and effectiveness of this model are verified using authoritative data. The research conclusions can provide a reference for the government to establish a carbon market pre-trading mechanism, adjust the capacity of thermal power units, and expand the carbon trading market.