Bi-level multi-objective optimization for a hybrid carbon pricing initiative towards biomass co-firing with coal

Coal-fired power generation is one of the major contributors to global carbon emissions. Biomass co-firing with coal is a cost-effective approach for carbon abatement. This paper formulates a hybrid carbon pricing initiative that combines an emission trading system (ETS) and a carbon tax, with ETS being applied to large power plants and carbon tax being applied to small power plants. A bi-level multi-objective optimization model is established to assist the multiple stakeholders to develop optimal strategies, and quantify environmental and economic impacts. In the proposed model, decision sequence from the authority to the coal-fired power plants is considered, and trade-offs between social welfare and carbon intensity is determined. Bi-level interactive fuzzy approach is adopted to search for satisfactory solutions. A case study is conducted to demonstrate the model’s practicality and efficiency, and the results reveal that this model is adequate for finding Stackelberg equilibrium between the hierarchical decision-makers with conflicting objectives. Sensitivity analyses are conducted to provide the stakeholders with reasonable and practical strategies under various situations. It is found that higher preferences for economic benefits and satisfactory degrees would increase carbon tax price. Management recommendations are provided to support the hybrid initiative for biomass co-firing with coal.