Abstract
The United Nations Framework Convention on Climate Change (UNFCCC) is an international environmental treaty to stabilize greenhouse gas concentrations in the atmosphere. In order to fulfil the commitments of the countries in an economically efficient way, the UNFCCC adapted the emission trading scheme in the Kyoto Protocol. If the UNFCCC's scheme is enforced in the country, considerable changes in electric power industry are expected due to the imposed greenhouse gas emission reduction. This paper proposes a game theoretic model of the case when generation companies participate in both competitive electricity market and emission market simultaneously. The model is designed such that generation companies select strategically between power quantity and greenhouse gas reduction to maximize their profits in both markets. Demand function and Environmental Welfare of emission trading market is proposed in this model. From the simulation results using the proposed model the impact of the emission trading on generation companies seems very severe in case that the emission prices are significantly high.
