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Carbon-Driven Hierarchical Incentive Mechanism for Renewable Power-to-Ammonia Production in Carbon and Ammonia Transactions

Yangjun Zeng, Huayan Geng, Yiwei Qiu, Xiuli Sun, Liuchao Xu, Jiarong Li, Shi Chen, Buxiang Zhou, Kaigui Xie

Abstract

Renewable power-to-ammonia (ReP2A) production offers a viable pathway to decarbonize the power and chemical sectors and is increasingly supported by carbon-emission policies. However, a carbon-related mechanism that links ReP2A producers with fossil-based gray ammonia (GA) competitors while aligning the interests of renewable power, green hydrogen, and green ammonia producers in the ReP2A process chain remains unexplored. To fill this gap, we propose a hierarchical carbon-driven incentive mechanism (PCIM) to improve the market competitiveness of green ammonia. We first construct a trading framework in which ReP2A and GA participate in both the carbon allowance (CA) and ammonia markets, which forms the outer layer. These interactions, together with electricity and hydrogen transactions in the ReP2A chain, which form the inner layer, are modeled as a hierarchical game. For tractability, the inner layer is characterized via decomposable equivalent optimization, and the outer layer is solved as a mixed-integer linear program (MILP) derived from Karush-Kuhn-Tucker conditions. Based on the resulting equilibrium, we identify the carbon-related revenue of ReP2A and propose an incentive-compatible CA allocation mechanism (PCAM) %to ensure equitable benefit sharing across the ReP2A chain. Simulations show that the PCIM reduces carbon emissions by 12.9\% at a cost of only a 1.8% decrease in sectorwide revenue, and results from the PCIM provide guidance for carbon pricing. Furthermore, the application of the PCAM increases stakeholders' willingness to participate in ReP2A production.

Carbon-Driven Hierarchical Incentive Mechanism for Renewable Power-to-Ammonia Production in Carbon and Ammonia Transactions

Abstract

Renewable power-to-ammonia (ReP2A) production offers a viable pathway to decarbonize the power and chemical sectors and is increasingly supported by carbon-emission policies. However, a carbon-related mechanism that links ReP2A producers with fossil-based gray ammonia (GA) competitors while aligning the interests of renewable power, green hydrogen, and green ammonia producers in the ReP2A process chain remains unexplored. To fill this gap, we propose a hierarchical carbon-driven incentive mechanism (PCIM) to improve the market competitiveness of green ammonia. We first construct a trading framework in which ReP2A and GA participate in both the carbon allowance (CA) and ammonia markets, which forms the outer layer. These interactions, together with electricity and hydrogen transactions in the ReP2A chain, which form the inner layer, are modeled as a hierarchical game. For tractability, the inner layer is characterized via decomposable equivalent optimization, and the outer layer is solved as a mixed-integer linear program (MILP) derived from Karush-Kuhn-Tucker conditions. Based on the resulting equilibrium, we identify the carbon-related revenue of ReP2A and propose an incentive-compatible CA allocation mechanism (PCAM) %to ensure equitable benefit sharing across the ReP2A chain. Simulations show that the PCIM reduces carbon emissions by 12.9\% at a cost of only a 1.8% decrease in sectorwide revenue, and results from the PCIM provide guidance for carbon pricing. Furthermore, the application of the PCAM increases stakeholders' willingness to participate in ReP2A production.

Paper Structure

This paper contains 38 sections, 2 theorems, 19 equations, 12 figures, 4 tables.

Table of Contents

  1. Abbreviations
  2. Indices
  3. Variables
  4. Price-related variables
  5. Variables related to RG
  6. Variables related to HP
  7. Variables related to RA
  8. Variables related to GA
  9. Parameters
  10. Introduction
  11. Background and Motivation
  12. Related Work
  13. Contributions
  14. System Structure and Trading Framework
  15. Operational Decision Modeling of ReP2A and Gray Ammonia Systems
  16. ...and 23 more sections

Key Result

Proposition 1

At equilibrium, the total traded CA, $\hat{q}^\text{all}$, is uniquely determined, whereas the CA allocations $q^{\text{rg}}$, $q^{\text{hp}}$, and $q^{\text{ra}}$ are indeterminate. $\blacktriangleleft$$\blacktriangleleft$

Figures (12)

  • Figure 1: Structure and trading framework of ReP2A and gray ammonia systems.
  • Figure 2: Time scales for carbon, ammonia, electricity, and hydrogen transactions.
  • Figure 3: Hierarchical game framework inside the ReP2A chain and between ReP2A and GA systems.
  • Figure 4: Overall solution framework for the equilibrium analysis of the hierarchical game.
  • Figure 5: Ammonia yield for 12 weeks under varying ammonia prices.
  • ...and 7 more figures

Theorems & Definitions (5)

  • Proposition 1
  • proof
  • Remark 1
  • Remark 2
  • Proposition 2