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Coal-Biomass Co-firing within Renewable Portfolio Standards: Strategic Adoption by Heterogeneous Firms and Emissions Implications

As electricity from coal declines, co-firing coal plants with biomass has been proposed to extend coal unit life, increase production, and reduce carbon emissions. Previous studies reach conflicting conclusions on whether coal biomass co-firing would result in a net increase or decrease in carbon emissions. We explore whether biomass co-firing would decrease emissions using a novel framework that includes two critical features of electricity markets: strategic adoption decisions by firms and intertemporal constraints on power plant operations. We apply this framework to a case study based on the Midwestern U.S. electricity market and show that profit maximizing firms will retrofit mid-efficiency coal units, rather than the most or least efficient units. We demonstrate that, contrary to expectations, this strategy leads to a net increase in system-wide carbon emissions under high carbon prices because of the other generators displaced by co-firing units.

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Keywords: Electricity markets, Game theory, Technology adoption, Equilibrium framework, Environmental regulations

DOI: 10.5547/01956574.44.4.bval

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Published in Volume 44, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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