Modeling Generator Power Plant Portfolios and Pollution Taxes in Electric Power Supply Chain Networks: A Transportation Network Equilibrium Transformation

Global climate change and fuel security risks have encouraged international and regional adoption of pollution/carbon taxes. A major portion of such policy interventions is directed at the electric power industry with taxes applied according to the type of fuel used by the power generators in their power plants. This paper proposes significant extensions to the electric power supply chain network model originally proposed by Nagurney and Matsypura (2005) in order to capture the behavior of power generators faced with a portfolio of power plant options and subject to pollution taxes. We then demonstrate that this general model can be reformulated as a transportation network equilibrium model with elastic demands and qualitatively analyzed and solved as such. The connections between these two different modeling schemas, originally hypothesized in the classical book by Beckmann, McGuire, and Winsten (1956) is done through finite-dimensional variational inequality theory. The numerical examples illustrate how changes in the pollution/carbon taxes affect the equilibrium electric power supply chain network production outputs, the transactions between the various decision-makers the demand market prices, as well as the total amount of carbon emissions generated.