Incentive Mechanisms for Thermal Power Generation Enterprises with Conflicting Tasks: Electricity Production versus Carbon Emission Reduction

Abstract

Coal combustion remains the primary source of thermal power generation, contributing to approximately half of China’s electricity supply. As China strives towards the goals of “carbon peaking and carbon neutrality”, the issue of carbon emissions ascends to critical importance in the thermal power industry. The delicate balance between preserving electricity production capacity and curbing carbon emissions presents a considerable challenge to thermal power enterprise management. This paper models the incentive and organizational dilemmas arising from these conflicting tasks in thermal power generation enterprises, and compares the advantages and disadvantages of single-agent and multi-agent systems. Two practical scenarios are examined: (1) the “Two Mountains” theory propounded by the Chinese government, which attaches equal importance to thermal power production and carbon emission control, and (2) the 2022 Chinese summer electricity crisis, in which thermal power production takes on a dominant role. Through comparative static analysis of both single-agent and multi-agent models under these circumstances, this study concludes that, in the first scenario, the multi-agent model outperforms the single-agent model by enhancing agent effort levels and bolstering government revenue. However, when power supply emerges as the chief concern of thermal power enterprises, centralized management of a single-agent is more effective.