Carbon-Driven Hierarchical Incentive Mechanism for Renewable Power-to-Ammonia Production in Carbon and Ammonia Transactions
For policymakers and stakeholders in renewable energy and chemical sectors, this work addresses the need for a carbon-related mechanism to coordinate ReP2A producers with fossil-based competitors and align interests across the production chain.
This paper proposes a hierarchical carbon-driven incentive mechanism (PCIM) to improve the market competitiveness of green ammonia from renewable power-to-ammonia (ReP2A) production. Simulations show that PCIM reduces carbon emissions by 12.9% with only a 1.8% decrease in sector-wide revenue, and an incentive-compatible carbon allowance allocation mechanism (PCAM) increases stakeholders' willingness to participate.
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.