Abstract
Electricity and carbon trading towards carbon reduction are highly coupled. The research on joint trading is essential for helping companies identify optimal strategies and enabling policymakers to detect potential policy loopholes. This study presents a novel game theory optimization model involving both power generation companies (GenCos) and factories to explore optimal operation strategies under electricity-carbon joint trading. By fully capturing the operational characteristics of power generation units and the technical energy consumption of electricity-consuming enterprises, it describes the relationship between renewable energy, fossil fuels, electricity, and carbon emissions detailedly. Considering the correlation between production volume and price of the same product, the case actually encompasses three trading systems: electricity, carbon, and commodities. Transforming this nonlinear model into a mixed-integer linear form through piecewise linearization and discretization, this study examines, through a virtual case with three GenCos and four factories, the impact of various emission reduction targets, comparisons of different carbon allocation mechanisms, and the influence of allowing zero-emission companies into carbon trading. Results reveal that since consumers may cut production rather than implement low-carbon technologies to lower emissions, driving up product prices to maintain profits, high electricity, and carbon prices become unsustainable for GenCos due to reduced electricity demand. Moreover, while intensity mechanisms can incentivize production, overall system profits decrease, which is undesirable for policymakers. Lastly, under strict carbon reduction targets, zero-emission companies may transform the carbon market into a seller's market by purchasing carbon to raise carbon prices, thereby reducing electricity prices and lowering their operating costs.