Leader-follower optimized approach for carbon-economy equilibrium in the municipal solid waste (MSW) incineration industry.

Municipal solid waste (MSW) incineration contributes significantly to carbon emissions, and has become a serious problem in China, which has seen an exponential rise in waste over the last twenty years due to rapid urbanization and the associated consumer economy growth. To tackle this issue, this paper develops a leader-follower optimized approach for economic and environmental equilibrium in incineration power plants that includes a carbon allowance allocation scheme (IPP-CAAS) under combustion and pollutant limitations. In the leader-follower (bi-level) game, the regional authority on the upper level determines the carbon allocations and environmental targets and the IPPs on the lower level develop schemes to maximize revenue under the upper-level restrictions. By employing uncertain parameters for the carbon and power conversion fluctuations, the approach is able to more accurately depict the industry characteristics of waste incineration process in this carbon-economy balance problem. The robustness and practicality of the proposed methodology was then validated through a case study. Scenario analysis under different political parameters indicates that the proposed methodology can assist the authorities to achieve carbon-economy trade-off and under serious carbon-control situations, encourage the IPPs to reduce their blended coal ratios, and invest in low-carbon incineration technology. Managerial insights on further industrial developments are also given for the authority and relevant practitioners.