Allocating Absolute or Relative Emission Allowance under Cap-and-trade Scheme? A Nonlinear Model with Customer Choice Behavior Considered

To reduce carbon emission, Cap-and-Trade (C&T) is regarded as one of the effective environmental regulations around the world, which brings huge challenges to generating companies. In this paper, a non-linear programming model considering market drive of green consumption is proposed to make decisions of green improvement, production planning, product pricing and carbon trading for the generating companies. Policies allocating absolute and relative emission allowance are also analyzed through numerical experiments. Our research results show that the consumers' factors such as the environmental awareness can be as important as the government regulations in emission reduction. The system performance of generating companies performs better when carbon price fluctuates and the consumers' environmental awareness improves if relative emission allowance policy is implemented.