Effective use of carbon pricing on climate change mitigation projects: Analysis of the biogas supply chain to substitute liquefied-petroleum gas in Mexico

Abstract

There is presently an urgent demand for efficient and/or renewable energy technologies to correct global warming. However, these energy technologies are limited mainly by political and economic constraints of high costs and the lack of subsidy. Carbon-pricing strategies, such as carbon-emission taxes and carbon-emission trading schemes, may reduce this gap between sustainable and unsustainable energy technologies. Therefore, this paper seeks to analyze both of these carbon-pricing instruments in the Mexican energy sector to promote upgrading biogas investment and to substitute liquified petroleum gas consumption using an optimization approach. Furthermore, we propose a multi-objective optimization approach to encourage investment in the biogas supply chain supported by an effective use of carbon-pricing schemes. A case study of the central western region of Mexico was made to analyze the performance of the proposed methodologies. The results show that carbon-emission taxes and carbon-emission trading systems stimulate, with some limitations, the investment in biogas projects for fossil fuel substitution. Nevertheless, using the proposed multi-objective optimization formulation leads the discovery of a more efficient use of the above-mentioned carbon-pricing schemes, thus reaching higher economic and environmental benefits than traditional carbon-pricing policies, with a lower cost/price per ton of carbon dioxide equivalent.