Greening the Grid: Electricity Market Clearing with Consumer-Based Carbon Cost

Abstract: To enhance decarbonization efforts in electric power systems, we propose a novel electricity market clearing model that internalizes the allocation of emissions from generations to loads and allows for consideration of consumer-side carbon costs. Specifically, consumers can not only bid for power but also assign a cost to the carbon emissions incurred by their electricity use. These carbon costs provide consumers, ranging from carbon-agnostic to carbon-sensitive, with a tool to actively manage their roles in carbon emission mitigation. By incorporating carbon allocation and consumer-side carbon costs, the market clearing is influenced not solely by production and demand dynamics but also by the allocation of carbon emission responsibilities. To demonstrate the effect of our proposed model, we conduct a case study comparing market clearing outcomes across various percentages of carbon-sensitive consumers with differing carbon costs.