Energy pricing and investigating international trade law considering renewable energy investments under the cap-and-trade system: A game theoretic approach

Sima Amiri-Pebdani, Mahdi Alinaghian and Hossein Khosroshahi

Applied Energy, 2025, vol. 381, issue C, No S030626192402539X

Abstract: This research uses a game theory (GT) model to analyze energy pricing under international trade law (ITL) and the cap-and-trade (C&T) system for two competitive supply chains (SCs) in exporting and importing nations in order to achieve the SDGs. Because governments have the ability to interfere in the market economy, two scenarios are designed to investigate the consequences of increased renewable energy (RE) investments on three policies: minimizing global environmental damage, maximizing social welfare, and increasing government income. In the N scenario, the C&T mechanism allows exporting and importing governments to influence renewable energy output. In the S scenario, importing nations employ the C&T system to support renewable energy generation by contributing to investment expenses. Importing nations may increase export levies to protect their industries. In both scenarios, producers in importing countries choose the RE production rate and domestic electricity selling price, while producers in exporting countries set the foreign power selling price. Importing nations use a variety of approaches to determine the right carbon emission limit and tariff rates. The results show that in comparison to the two scenarios, the rate of RE generation is about 26 % higher, the selling price of energy is about 2.4 % lower, domestic demand is about 20 % higher, imports are about 18 % lower, profits for producers in the importing nation are about 5.6 % higher, adverse environmental effects are about 11.5 % lower, social welfare is about 6 % higher, and government revenue is about 8 % higher in the S scenario than in the N scenario. Carbon quotas and tax rates affect renewable energy production, demand, power pricing, and imports. Government support for the C&T system may impact imports and producer profits.

Keywords: Pricing; International energy trade; Cap-and-trade; Renewable energy investment; Game theory (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.apenergy.2024.125155

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