Model for subsidizing industry and power company through gray-electricity taxation

Global warming is a pressing global issue, necessitating the reduction of carbon emissions to zero. This study employs an Equilibrium Problem with Equilibrium Constraints model, involving three agents: the government, a state-owned power company, and industry. The solution identifies how much of the electricity generated from renewable resources by power company and industry can be subsidized solely from the green tax revenue pool. The solution of the green tax that can be imposed on the power company for the unit of electricity generated from fossil fuel resources, along with the solution of subsidy for the industries for a unit of electricity generated from renewable resources, are observed. The study considers twenty possible cases of average electricity prices and rebates for the power company. It then consider the scenario of net-zero carbon emissions for the same twenty cases. In the net-zero scenario, the total amount of electricity that can be subsidized using only the green tax revenue pool will decrease significantly while increasing the rebate to the power company. Doing so requires the government to find additional income resources to subsidize the power company for the remaining electricity generated from renewable resources. To reach minimal carbon emissions, the government must allocate 0.3 %–1 % of the gross domestic product (2022) to subsidize the transition from fossil fuels to renewables. Overall, the study demonstrates that raising power company rebates and implementing higher green taxes for gray electricity can slow carbon emissions.