CRIEPI’s CO2 Emission Permits &
Electricity Trading Experiment
Toru Ohkawara (ohkawara@criepi.denken.or.jp)
Socio-economic Research Center
Central Research Institute of Electric Power Industry
Tokyo, Japan
March 19,2002 at RIETI
1
Main Characteristics of Trade Experiment
• Participants to the market
Virtual generation companies similar to Japanese electricity companies.
CRIEPI’s researchers played the roles of nine companies in the experiment
• Commodities traded in the market
Virtual company trades both CO2 emission rights and electricity.
Generators produce both electricity and CO2 simultaneously.Virtual company
tries to maximize its profit by deciding operation and investment of power
plants which are also means of reduction of CO2.
• Uncertainty
The ex-ante demands are reported by game-master but the ex-post demands
are determined probablisitically
• Market clearance mechanism
Order Driven Method; Orders to buy or sell were collected within a set
amount of time, and then the trade volume and price were determined by
demand balancing. Electrical trade through the Internet
2
Behavior of Virtual Electricity Company
Given Conditions
T　otal electricity demand
CO2 emissions objective
Exiting generation capacity
Price of fuels for genaration
Capital cost and CO2
emission rate of generation
Retail electricity price
strategy
Operation and investment of different
types of generation e.g. nuclear, coal, gas
and renewable energy.
Trade of CO2 emission permits and
electricity among companies.
Object
Profit maximization
3
１st
1st Experiment: Ends in 2012
CO2 Emission Trade
（¥/ｔCe)
Ce)
Price and Quantity
¥29,007
Clearance
30000
¥29,009 Trade
Penalty
×1.5
1500
1400
¥25,030
Highest
1300
1200
1100
¥19,339
Average Price in 2008～
2008～2012
20000
(10,000 tCe)
tCe)
1000
900
¥16,667
Price of Emission （Left Axis）
Axis）
580万ｔ
580万ｔ万ｔ-C
|14,000;First
|14,000;First Price
800
Equilibrium Price
Based on Allied
Behavior
700
600
500
10000
400
Quantity Traded （Right Axis）
Axis）
300
200
100
0
0
123456123456123456123456123456123456123456123
2006
2007
2008
2009
2010
2011
2012
Clearance
4
２nｄ
2nd Experiment: Ends in 2013
CO2 Emission Trade
（¥/ｔCe)
Ce)
(10,000 tCe)
tCe)
Price and Quantity Traded in the CO2 Emission Market
30000
1500
1400
1300
¥19,000
1200
Penalty
¥21,137
¥20,000
20000
1100
1000
Price of Emission （Left Axis）
Axis）
900
800
¥14,091
Average Price in 2008～
2008～2012
700
¥12,250
10000
¥9,141
Equilibrium Price
Based on Allied
Behavior
600
500
¥8,500
¥10,000
400
¥7,500
300
Quantity Traded （Right Axis）
Axis）
200
100
0
0
1 2 3 4 5 6 1 2 34 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 23 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 12 3 1 2 3 4 5 6
2006
2007
2008
2009
2010
2011
2012
C.P.
2013
5
Summary
In the 1st simulation, insufficient investment of power plant and unexpected
growth of power demand created rise in the prices of emissions permits and
power.
In the 2nd simulation, since several large companies invested excessively in
power plant despite of relatively lower demand for power, the price of
emissions permits fell gradually, so did price of power.
These confirmed that the price of emissions permits was greatly affected by
the uncertainty in the demand for power and by investment of power plants.
The price of emissions permits was affected by their demand throughout the
entire periods of the simulation, not just by the current year.
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Summary
The rules of fine system may explain the price fluctuations in the later half of
two simulations (when the demand and supply condition of market was
gradually getting known).
In case of non-comliance of CO2 emission reduction, the company should pay
fine. The fine is set at 150% level compared to the average market price.
During the first simulation, this fine system affected the increase of emissions
price. Since the fine is varied according to the market price, the rule of fine
itself might affect the market price. Some of the participants tries to hold
emission permit because they can sell it in the grace period at the high price
which is nearly equal to fine level.Thus, the market power to rise the price is
observed.
If an emissions permits trading system is to be established in Japan in future,
it will need to be investigated along the lines of the Danish system, in which
the fine is a fixed amount.
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