Optimal carbon taxes for emissions targets in the electricity sector

Daniel J. Olsen, Yury Dvorkin, Ricardo Fernandez-Blanco, Miguel A. Ortega-Vazquez

Research output: Contribution to journalArticlepeer-review


The most dangerous effects of anthropogenic climate change can be mitigated by using emissions taxes or other regulatory interventions to reduce greenhouse gas (GHG) emissions. This paper takes a regulatory viewpoint and describes the Weighted Sum Bisection method to determine the lowest emission tax rate that can reduce the anticipated emissions of the power sector below a prescribed, regulatorily-defined target. This bilevel method accounts for a variety of operating conditions via stochastic programming and remains computationally tractable for realistically large planning test systems, even when binary commitment decisions and multiperiod constraints on conventional generators are considered. Case studies on a modified ISO New England test system demonstrate that this method reliably finds the minimum tax rate that meets emissions targets. In addition, it investigates the relationship between system investments and the tax-setting process. Introducing GHG emissions taxes increases the value proposition for investment in new cleaner generation, transmission, and energy efficiency; conversely, investing in these technologies reduces the tax rate required to reach a given emissions target.

Original languageEnglish (US)
Article number8338157
Pages (from-to)5892-5901
Number of pages10
JournalIEEE Transactions on Power Systems
Issue number6
StatePublished - Nov 2018


  • Air pollution
  • carbon dioxide
  • carbon tax
  • climate policy
  • power system economics
  • unit commitment

ASJC Scopus subject areas

  • Energy Engineering and Power Technology
  • Electrical and Electronic Engineering


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